Saturday, March 19, 2011

A Canada Bubble?

As Canada has had a much stronger job market (the employment rate is down by less than two percentage points compared to five percentage points in the U.S.) pre-crisis levels, compared i and stronger recovery than its southern neighbor, and with its GDP per capita at current exchange rates now also exceeding the U.S. level (though only slightly, but in the past the U.S. has always been ahead usually with a wide margin)), Canada's economy is receiving a lot of praise both from foreigners and from Canadians.

However, while Canada have relatively strong growth now, Canada's boom has been largely driven as this article points out by two cyclical sectors, commodities and housing, a story not dissimilar to that of Australia.

The fact that Canada's current account deficit unlike Australia's (its deficit has fallen significantly) have risen despite the increased revenue from commodity exports however indicates that the potential problems facing Canada are greater than Australia's.

If these two sectors were to experience dowmnturns at different times, Canada might get away with a "soft landing". If however they go down simultaneously, then Canada will face a deep slump.