Tuesday, April 1, 2008

Recession Fears Over: Canadian Economy Soars in January

Yup, it's official. Now that Canada's economy grew by 0.6% in January, any fears about recession in Canada are over right. After all, 0.6% is actually about 7% annualized. That is the strongest growth since April 2005. Heck, a new boom has started!!

Wait a minute. January did grow by 0.6%. However, December shrank by 0.7% (8% annualized). Clearly, monthly figures have too much noise in them, as both 7% growth or 8% contraction are not sustainable in the current environment.

Let's just conclude that in the December-January timeframe, it is likely that the Canadian economy was stalling out near 0% (if two months can be used as a good indicator, if the two months are averaged out and if these numbers are not significantly revised in the future).

Therefore, I will say it is premature to conclude whether or not the Canadian economy started a recession in December. I think it did but I will keep an open mind about it.

Note that on March 31 (Jan GDP release date) the Canadian dollar sunk despite the "strong" January GDP likely due to the continued sharp sell-off in commodities. The falling Canadian dollar may help the manufacturing sector a little but the move down to 97 cents is much too little and way too late. Falling commodity prices are likely to hurt the Western economy if this implosion continues, as I think it will. I think that the Canadian dollar will likely fall to 92-94 cents over the coming months, but once again "too little, too late" to save the economies of Ontario & Quebec.

Positions in HGD & HOD, Can & US cash

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