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Update, Canada's Economy From 10,000 Feet

Why Read: Because Canada, a comparatively small economy by world standards (2011 GDP U.S.$1.7 trillion - 10th largest in the world - source Wikipedia) seems on a comparative basis to be doing 'very well thank you'. Canadian's ought not to be complacent.

Commentary: Standard & Poor's has reduced its outlook for seven of Canada's largest banks from 'stable' to 'negative' in the face of what it sees as prolonged increases in both housing prices and consumer debt. This increases the possibility of credit downgrades, but does little else.

To date, Canada has largely escaped the economic downturn that has very negatively impacted the economies of other developed countries including those in the 17 member Eurozone, the United Kingdom and the United States. That can't go on forever, particularly as there are increasing negatives affecting the commodities markets - and hence resource companies and in due course if that continues, resource based economies such as Canada's.

That said, on Friday Canada's Finance Department reported that for April and May - the first two months of Canada's fiscal year that ends March 31, 2013 - the Canadian Federal Government deficit was Cdn$832 million. That was down by over 50% from the same period last year (then Cdn$2 billion). The Canadian Government currently is projecting a Federal deficit of Cdn$21.1 billion for fiscal 2013, dropping further in fiscal 2014 and 2015 (Cdn$ 10.2 billion and Cdn$1.3 billion respectively), with a return to a Federal surplus in fiscal 2016 (Cdn$3.4 billion).

To put Canada's fiscal 2013 Federal deficit projection in some perspective, per capita (per person) it is about one-sixth of the current forecasted U.S. Federal deficit for the current U.S. fiscal year, which ends on September 30.

To put Canada's 'economy from 10,000 feet' into further perspective, Canada's economy is very far from an isolated one in world terms. If the world economy deteriorates further, and it all signals seem to point that way, it is unlikely Canada's Federal Government will be able to realize on their 'return to Federal surplus' forecasts by fiscal 2016.

Topical References: S&P cuts outlook on seven major Canadian banks, from The Financial Post, John Greenwood, July 27, 2012 - reading time 2 minutes; and Ottawa's deficit shrinks as tax income rises, from The Financial Post, Gordon Isfeld, July 27, 2012 - reading time 2 minutes.

 

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