Region will weather recession.

• Author: Pullia, Frank
• Position: A WINDOW ON THE NORTHWEST

In recent months, the clouds of an impeding economic storm have become visible on the horizon. Some Canadians have been feeling quite smug about the mortgage and liquidity crisis of our neighbor to the south and believe that it will not affect us due to our stronger banking and credit system. The strength of the Canadian dollar for a while seemed to confirm this assumption. In fact, for about a month or so it reached and then surpassed parity with the US dollar.

It is now an accepted fact that the high Canadian dollar has not been good for our economy, given the heavy reliance on exports. In fact, when combined with other global competitive forces, it has been outright devastating for the forestry and manufacturing sector. Despite all of this, there still is a strong believe that Canada would be able to ride out any recession happening in the U.S., on the basis of the strong demand for our commodities from emerging economic power houses like China and India. This assumption is based on the belief that we and the rest of the world have somewhat disengaged from the huge U.S. market. This assumption is being tested in early 2008 in the stock markets around the globe. They do not think so and have already anticipated a recession taking place in the U.S. and spreading around the globe in 2008, with a drop of around 10% in the value of stocks in the first two-three weeks of the year.

Obviously this state of affairs did not happen overnight, but it has been brewing for years given the irresponsible conduct of banks in the U.S. and around the world. They are giving loans to people and organizations that would not qualify if the basic tenet of matching risk and reward would have been followed. There has already been sufficient coverage of this issue in the media so I will not dwell on it.

What does all of this mean for Canada and specifically northwestern Ontario? It means that if there is a global slow-down the demand for commodities like minerals and oil will drop accordingly As it is already happening in the U.S., once consumers start feeling the pinch of an economic crunch they start spending less (consumer spending in general account for around 2/3 of the gross domestic product), which drives the economy into further contractions. I believe that the negative impact on the economies of the western Canadian provinces will take up to six months or maybe a year to materialize given there is already substantial pent up demand for these products...