Canada Is Not Immune to America’s Problems

Among the nations of the Group of Eight, Canada is a shining example of fiscal order: Its public debt does not exceed 35 percent. However, even such a well-managed country will not avoid feeling the effects of the global crisis.

The reason is that Canada is closely bound to the American economy. “Canada is not an island,” Canada’s Finance Minister Jim Flaherty reminded Canadians over the weekend.

Even though Canada has almost no problems with its own finances, the S&P/TSX composite index on the Toronto stock exchange plummeted by 4 percent. Oil companies bore the brunt of the damage. The stocks of Canadian giant Suncor, which is involved in extracting oil from tar sands, fell 6.93 percent, the result of falling oil prices. Even gold isn’t helping right now. According to the newest information, profits in gold investment are unable to cover the losses in oil. Sherry Cooper, an economist at the Bank of Montreal, says that “In this environment, commodity prices likely remain soft and the Canadian dollar is vulnerable and extremely volatile.”

All of this is bad news for Canadian exporters, who power the domestic economy. Minister Flaherty admitted recently that one third of all products made in Canada are for export. The world primarily buys Canadian energy resources, such as oil, lumber, nickel and potassium. If these foreign clients start having money problems, the sales might stop, or continue at greatly reduced prices. What’s worse, American companies make up the bulk of Canada’s foreign clients. If the US economy takes a dive, “Canada will dive, too,” says Sebastien Lavoie, an analyst with the Laurentian Bank of Canada. He also adds that Canada is doing all it can to lessen its dependence on the U.S. “It would be in our interest to be linked to the economies of Asia, Latin America and Europe.”