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July 22, 2010

Canada's economy heading back into recession

CANADA - Thought the recession was gone? Nope, its coming back for the "Dreaded Double Dip", likely sometime in late 2010 or early 2011.

Canada's economy is slowing fast, but is still leagues ahead of the global competition which is stalling rapidly and appears to be headed towards a global depression. Debt crisises in Greece, Spain and the rest of the EU, plus the economic troubles in America's gulf coast region and slow recovery in the USA have created a combination of factors for why Canada's economy is sputtering once more.

The Bank of Canada raised its key interest rate 0.25% a couple days ago, despite economic news that Canadians weren't ready for it. Especially the mortgage and loan industry. Higher interest rates hurts homebuying and automotive sales.

Still the Bank of Canada refuses to backoff on the idea of raising interest rates. Their hope is to eventually raise it from its current position at 0.75% to 2%, in an effort to match the inflation rate.

But what about deflation? In the USA prices are coming down so fast that the American economy is seeing deflation, which is considered a sure sign of a depression.

But politicians don't like to use that word depression. Heck, even economists are worried about using it because using the word can often spark fear and people will cut back on their spending habits... which in turn hurts the economy.

But there is ways around that:

1. You spend because you need to: Rent/mortgage, food, medicine, necessities.

2. You spend so you can save more money later. ie. Buying a bicycle and saving on gasoline by cycling to work.

3. You spend frivolously, but only on products or services made in Canada. (Or at very least made in the USA.)

The moment you buy something you don't need that is made overseas, you've just shipped your money over to China (whose economy is booming right now) or wherever it was actually made. The bulk of that money ends up in the pocket of some wealthy Chinese businessman and very little actually trickles down to the workers who are being paid peanuts.

If its something that you actually need you can probably buy a Canadian-made version, but if you can't oh well. Its a necessity.

Otherwise your goal should be to pay off your credit cards/loans as quickly as possible, because you may need them later in the event of a rainy day.

And that rainy day may be sooner than you think. During the first three months of 2010 Canada's economy grew out of the recession it had been in with 6.1% growth. But according to new estimates the 2nd quarter of 2010 will experience only 3% growth, showing that the economy is slowing and starting to falter.

Its still growth, for now, but if it slows even more we could dip back into the negatives within the next 6 months.

Estimates for the third quarter were predicting 3.5% growth, but that has since been lowered to 2.8%. Some economists are predicting Canada's economy could slow to 1 or 2% by the fourth quarter.

The Bank of Canada earlier this year predicted Canada's economy would grow 3.5% overall, but they may need to adjust that estimate downwards. They were also predicting 2.9% growth for 2011, but that is now expected to change too.

The Canadian dollar is expected to stay in the 96 cents US range, but only if oil prices stay stable.

The global economy is expected to rebound 4.2% this year, but that could be dramatically altered by global events. The debt crisis in Europe continues to loom and the Canadian real estate market is expected to burst sometime in the next 6-9 months, likely provoking a Canadian recession.

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