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ECONOMY: Grim news even for resource-rich Canada
        (AlbertaIndex, July 25, Friday) --- The recent sharp decline in commodity prices, especially for oil, has coincided with a spate of unequivocally bearish pronouncements on the outlook for the Canadian economy.         The impact of the still unfolding US credit crisis on the world economy is expected to be worse and longer lasting than previously feared. Hopes that Canada’s rich resource base, a beneficiary in inflationary times, will provide a hedge are fading. Worse, if oil and other commodity prices fall further, Canada could be dragged into a US-led recession.

In its latest forecast, Export Development Canada (EDC) sees Canada’s export earnings falling by one per cent in 2009 on a pull back in key commodity prices. Scotia Bank predicts the world economy will face a “long road to recovery” from the damage inflicted by the US subprime crisis.

Thanks to soaring energy prices this year, the EDC, Canada’s export credit agency, expects export earnings to rise by 4.2 per cent in 2008. But the good news ends here.

“Since our Spring Global Export Forecast, there hasn’t been much good news for Canadian exporters. Losses due to the US sub-prime crisis and its spillover effects into Canada continue to mount, the impact of soaring commodity prices upon consumers continues to increase, and proof of slowing global production is rampant,” said Peter Hall, EDC vice-president and chief economist.

“The gain of 4 per cent in exports in 2008 is actually an energy price story, but when all price effects are removed, Canadian exports are actually on track to tumble by 4 per cent this year.”

EDC also found that Canadian exporter confidence has fallen to its lowest point on record as a result of concerns over the declining world economic health.

“While EDC recognizes that global supply and demand for crude is tight, we see signs that a large price correction is on the horizon. On the demand front, growth expectations are likely to moderate as the global slowdown spreads and oil price subsidies in emerging markets are scaled back.

“On the supply front, the Energy Information Administration is already forecasting a doubling of OPEC surplus capacity, to four million barrels per day in 2009, and non-OPEC supply gains of one million barrels per day.

“EDC sees little evidence that the US is ready to emerge from its economic slump.  The US housing market is in the doldrums, and prices have further to fall.  The US consumer remains saddled with mortgage debt, imports are slowing, and weakness is expected to spread to the rest of the world.”

In its report, “A Long and Winding Road to Recovery,” Scotia Bank said the sudden shift from credit expansion to credit crunch, widespread layoffs in financial services and the unwinding of excesses in real estate activity will take years, not months, to resolve. As in the US, weak employment and output growth will aggravate European and Japanese fiscal deficits.”

The report adds that weakening domestic demand in the major developed nations will temper the pace of expansion in China, India, Russia, Brazil and other emerging powerhouses.

“Canadian growth is being dragged down by weakening US demand, the loonie's return to parity and exceptionally high oil and natural gas prices. While these factors have clouded prospects for many manufacturing and globally focused industries such as tourism, the auto sector has been at the epicentre of the adjustment,” it said.

Both the EDC and Scotia Bank hold a more downbeat outlook than the Conference Board of Canada, which earlier had predicted that a better trade performance would help the Canadian economy grow by 2.7 per cent in 2009, rebounding from 1.7 per cent this year.

In contrast to the EDC, the board expects commodity prices to remain high through to next year.

“Seemingly insatiable global demand for raw materials, coupled with a recovery in forestry product prices, should keep prices elevated and shore up resource revenues and private investment,” it said.

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