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GDP Growth in April at Zero

After two strong quarters Canada's GDP growth has taken a break.  Some will say that the road to 4-5% GDP growth for 2010 will generate some reduction in the growth rate.  However, others (me), who take the view that after two strong quarter (Q4/2009 and Q1/2010) Canada was growing too quickly, in view of what is happening in the rest of the world.

If my target growth rate for Canada of 3.2% is to be achieved, Canada's economy will slow down dramatically in the second half of the year.  The Baltic Dry Index, a "fair" indicator of demand for bulk good is way off its year high of 4,500 -- as it hovers around the 2,900 mark, a 35% drop since mid December 2009.  The death cross has been reached on this index (when the 50 day average falls below the 200 day average), which speaks of wide spread weakness in the bulk good delivery system.

Oil prices are off the high, Copper is also way off its 12 month high, a further indication that demand is faltering.  For Canada, where mineral and energy exports accounts for 40 of GDP, and nearly half our exports that is bad news.  It also means that the Canadian dollar is going to trend down against the US dollar going forward.  

The Bank of Canada had been presumed to increase interest rates by another 25-50 bps in July, to eventually increase the differential in interest rates to nearly 1% between Canada and the U.S.  Now that theory is finding fewer takers! Especially since inflation seems to be largely contained (they key factor for the BoC is the stability of money, and not exchange rates).

Interesting factoids: (1) the number of 18-25 year old in China will drop by nearly 30% over the next three years; the Chinese government's "One Child" policy is finally beginning to affect the labor supply in China -- making China far less interesting as a cheap labor pool -- this will have implications for Chinese wage inflation. (2) Ben Venue Laboratories a US company interviewed 3,600 people for jobs in its labs, they required 9th grade level math skills -- they still have 53 opening -- they only found 47 who had the math skills (by the way these jobs pay $31,000 per annum).  This is rather appalling, although I remember interviewing a young woman for the job of administrative assistant, one question on the "math test" we had was:  What is 10% of 100?  She had no idea, despite the answer being in the question!  But then some people are baffled by the question:  What was the color of Napoleon's white horse? 

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