The Fundamentals Are Pretty Shaky
Thanks to Arthur Donner’s Economic Comment for bringing this to my attention.
The official line we hear everyday is that the Canadian fundamentals are great, while other countries are in deep trouble because they are spending beyond their means and borrowing too much from the rest of the world.
Yet IMF projections show that Canada’s Balance of Payments deficit on current account is now just about the worse among the advanced economies – worse than the US, and set to be even worse than Italy and Spain in 2012.
Despite the fact that our public sector deficitÂ is relatively low and resource prices have been high, we are now very large net borrowers from the rest of the world because of our large and growing trade deficit.Â The huge shrinkage of our manufacturing sector during the Great Recession and our relapse into resource dependency mean thatÂ correcting the current account imbalance will be difficult.
Fortunately, the exchange rate of the Canadian dollar is catching up to the reality of our real economic relationship with the rest of the world.
|Advanced Economies: Balance on Current Account|
|(Percent of GDP)|
|Source: IMF World Economic Outlook. Table A11.|