Tuesday, September 20, 2011

IMF Cut Canada's growth rate

Big news (not really) the IMF has cut Canada's 2011 growth rate to 2.1% and 1.9% in 2012 (down 0.7% for each year approximately).  Basic problem is not Canada but the fact that about 1/3 of Canada's GDP is dependent on exports, and our primary export markets are having a tough time (America, UK and Europe).  Now oil remains in the $85/bbl range (and has been around that level for some months now), but King Copper is telling a very different story, with copper price hitting 2011 lows.  

Copper is a good indicator of economic growth, and everywhere seems to be slowing down.  Canada is not a great exporter of copper (its like 9th largest exporters in the world), but Canada exports many things that when dropped tend to hurt your foot, and these are used in making things (Canada is a second derivative country).  

This is hardly a surprising prognostication considering that the Bank of Canada lowered its forecast for GDP growth earlier this year and the figure for them is 2.2% (whereas their 2012 forecast is 2.1%).  The IMF basically got in line with the BoC's own forecast (we will not quibble with a difference of 0.1%).

So there you have it, Canada is slowing (prospect for interest hike are dime to none) futures market is still pricing a Q1/12 25 bps cut in rates (no increase on the horizon for 2012).  Copper says world economy is ready for another pause (maybe not recession but slow growth), the result of debt contraction.  The only shoe left to fall in Canada is a fall in house prices...

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