Canadian economy in good shape despite possible U.S. recession: CIBC economist


LAKE LOUISE, Alta. - Canada will be relatively sheltered from a possible U.S recession because of our booming resource sector and minimal exposure to subprime mortgages, CIBC World Markets (TSX:CM) senior economist Avery Shenfeld says.

Shenfeld told a conference Thursday the recent spike in commodities like oil and natural gas reflect "the kind of numbers that you see amidst a global economic boom."

Canada benefits from the fact that it is an exporter of oil, which surged above US$110 a barrel on the New York Mercantile Exchange on Thursday.

"Increasingly Canada's become almost a petro-currency where the fluctuations in the price of oil drive the story almost day to day of the value of the Canadian dollar," Shenfeld said.

"When you are a resource exporter, which Canada is to a significant degree, you're getting more for each barrel of oil each tonne of nickel."

Any growth of the Canadian economy will come almost entirely from resource-rich Western Canada. Meanwhile the manufacturing heartland in Central Canada, which depends on selling exports to the United States, is experiencing virtually recession-like conditions.

"The key difference here is if Canada were an island unto itself, if we didn't trade with anybody, we'd be in a boom not a bust," Shenfeld said.

"If Canada were not a trading partner with the U.S. we'd be projecting a boom in the Canadian economy in 2008."

Canadian domestic demand has been growing at a much higher rate than in its neighbour to the south. That is mostly due to our relative insulation from the subprime mortgage crisis in the United States.

"Canadian banks tend to be pretty boring institutions. We're not as exciting as those Wall Street institutions. We don't try invent as many ways to lend people money who can't pay it back," Shenfeld said.

"So the net result was that we never really had much of a subprime mortgage market. It's not blowing up as a result."

© The Canadian Press, 2008