The Canadian Economy Flexes As Wildfires Take Flight

 

AppleMark

AppleMark

This past week saw the Bank of Canada hold its benchmark interest rate steady at 0.5%.  My lost twin brother, (metaphorically speaking) Bank of Canada governor Stephen Poloz has been less than dramatic with that constant ringing of half percent in our ear.  No, I don’t want to hear 20% anytime soon, thank goodness the 1980s are over.  However, with growth forecast at about 1% in our Canadian GDP from its April forecast, the bank is staying the course.  Dull wins out.

Of course we are not in a time of economic upheaval.  Canada is stable, especially compared to our European brands and with our American friends on our southern border doing a little bit better, that’s always good for us.  However, try telling that to the people of Fort McMurray Alberta devastated by the wildfires over the last three weeks.  The Fort McMurray fire now is as large as the province of Prince Edward Island and headed north.

The fire as noted in these pages a few weeks ago was a devastating thing for the people of Alberta, but it was also critically important to the Canadian economy.  The Bank of Canada might’ve been looking at growth of the GDP at 1% in their April forecast but they are expecting a 1 1/4% cut in real GDP growth in the second quarter based on the associated halt in oil production in the Fort McMurray area.  That is a huge blow to the Canadian economy and of course not quite unexpected given the calamity that unfolded.

It is always a trade-off to know what to do as the Bank of Canada.  There are always some economists that think things are too soft and they want a further rate cut.  Of course there are always others including people like our Minister of Finance who worry about all the money being poured into the housing market in Toronto and Vancouver and Canada’s other urban centers.  The low interest rate era can be challenging, to say nothing about the escalated price of farmland over the last several years.  What is a Bank of Canada governor to do?

With the price of Canada’s average home currently a $508,097, I bet it’s to keep interest rates down.  You know what I mean.  However, that is not quite yet as the Canadian economy ebbs and flows based on the export of commodities especially south to the United States.  Much of the future health of our economy will have to do with the price of oil as well as the future direction of the United States.  Our American friends are doing well, but of course there is that election on the first Tuesday in November.  The outcome of that may change the optics of all future trade flows between Canada and the United States.

I say that because both Republican prospective nominee Donald Trump and democratic prospective nominee Hillary Clinton don’t like the Trans Pacific Partnership agreement.  In fact, you could make an argument that as political candidates they seem very protectionist in their outlook.  Building walls and protecting America first is always good politics.  As Canadians, of course we know that our American friends love free trade as long as that means what is good for the United States.

I just put that out as a future outlier to think about.  The American election is a seminal event for the world always.  This November in my opinion we will have the first Female President of the United States.  A doubling down of the Obama administration is likely and for Canada, that’s not so bad.  Extremes in 2016 will continue to fall on hard times.

Of course, the health of the Canadian economy doesn’t end there with our American friends.  The Federal government is spending a pile of borrowed money for infrastructure projects across Canada.  For instance, in my area the Gordie Howe International Bridge is one example of how infrastructure helps everything.  About 40% of Canada US trade I believe goes over the present Ambassador Bridge between Michigan and Ontario.  That is only going to grow and the new Gordie Howe International Bridge will fill that void making it better on both sides.  That’s the silent unseen of infrastructure.

Of course what I’d like to see is much more of that for agricultural trade.  How about some infrastructure spending for value-added agricultural processing here in Canada with such a big market to our south?  I could go on and on, but in this low interest rate environment, it seems so many things are possible.

$50 oil seems to be one of them.  I’m sure that is warming the hearts of many economic policy advisers in the Department of Finance as well as the Bank of Canada.  Oil briefly hit that mark this past week, after being in the $20-30 range this past winter.  So there is hope, that driver in the Canadian economy will only get better.

As for me and the many other farmers in Canada we can only hope our greater economy gets stronger.  We constantly do our part.  My planting season is almost done.  Cash corn is approaching $5 dollars and soybeans are about $13.  What goes around comes around.  If I ever get to meet my lost one brother, that’s the advice I’d give him.

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