Business cycles are the fluctuations that occur in the economy due to various economic activities. There are various phases of the business cycle which moves from the lowest to the peak and vice versa. A business cycle describes the various conditions which reflect in the economy. Government has a substantial role to play in the market indicators affecting the economy. Study of business cycles makes it necessary to understand when the recession strikes in and when the road to recovery begins.
In Canada, the major industries are construction contracts and exports. Both have a substantial effect on the Canadian economy. Both domestic and foreign investments affect the economy of Canada. Canada went through a cycle of recession in 2008-2010 but it has come out of the cycle and is growing well. The recession deeply affected the Canadian economy and it did take some time to recover and bring back the GDP as well as employment levels. For the past thirty years, Canada has experienced three deep recessions which took time to recover. Several auto plants closed in 2009 due to recession and it led to layoffs. This in turn caused unemployment problems and GDP problems. Part of the economy did begin to recover in mid-2009.
The current stage of Canadian business cycle is developing and recovering from the recession it went through. The state of economy is mediocre, not bad and not that great. Current path of recovery post-recession is below average and going on a substandard basis. The potential growth of the economy is as low as 2%. The low growth can be due to the long term fall in the productivity levels. Up to 2013, the growth rate did not rise to a good extent which suggested that the economy was progressing in a substandard manner at a low growth rate. The substandard growth of economy is in comparison to the previous periods. The recovery has been chiefly driven by exports.
In 2013, the unemployment rate in Canada was higher than at the beginning at the rate of 7.2%. Employment growth has been extremely slow. The inflation also has been extremely low. The Bank of Canada has decided not to raise the interest rates and to increase the employment instead. The housing market is not picking up yet, and the bank is trying to create jobs as well as managing the falling Canadian dollars. Canadian dollar can boost the exports, and the economy can come back into the business. Exports play a significant role in the economy of Canada. The jump in exports will pick up the slack in the economy. The low rates of interest convince the customers to borrow, but there are signs of flagging. The economy is set to expand by a meager 2.3% in the year. The government is trying to curb the unemployment and currency fluctuations. Canada is facing fiscal policy issues with US, which is the country’s main trading partner. The exports have not reached the pre-recession peak. They are still stagnant and trying to pick up slack. Only when the export market emerges as a winner, the economy will be able to pick up. The government is trying to maintain the deficits by stimulus spending. Bank of Canada is also playing its part and maintaining the interest rates at a stagnant level. It is aiming to pick up the housing market as well as borrowing by the consumers.
Apart from the housing market, what is needed is an increase in exports and business investment which may push the economy forward. Investment is not expected to rise by more than 2% this year. The United States took around 73% of the country’s exports in the previous year. The Government is in trade talks with various countries so as to push the exports. The biggest single export of the country is oil and gas, it also has been falling due to the cross border pipeline project with the US. The economy is facing falling prices due to an increase in the shale gas and oil prices in the American Midwest. High uncertainty is prevailing at the spending decisions of the Canadian business heads.
The consumers are stuck with heavy debt loads. The amount of household loans has been significantly increasing, and the debt load on the consumers is not going down. With the low growth rate of employment and increasing debts taken by households, Canadian economy has a lot to be cautious about. The Federal Government is trying its best to deal with the crisis; they have estimated that they will be able to balance their books by 2016-17. Overall GDP growth will require an additional contribution by the Government. The business investments have also fallen as compared to previous years. Businesses are planning to invest in machinery and equipment in the coming year. A survey shows that the percentage of investment has fallen from 43% to 37% this year. Low exports and uncertainty about the economy has led the firms to choose not to invest at this point of time.
The Canadian dollar has shown a strong state despite the overall modest growth of the economy. The US dollar is gaining on the slow growth of the economy and the risk aversion which tends to shift in favor of the US dollar. The household debts are bringing the economy down to a large extent. The increasing debts along with a high interest rates and low employment growth has led to the ever increasing burden of debt on the economy. The Canadian Government is trying to push investments in infrastructure and export promotions. Canada is a large exporter of energy and base metals, hence demand creation for these resources should be done. Exports will benefit by a large extent with an increase in demand. Households are suffering from financial insecurity, and they are losing the faith in the economy as well as the Government.
The Canadian economy cannot be totally written off. It is going through a mediocre phase with no highs and no lows. The growth is not that high and nor is it alarmingly low. A lot is affected from the US economy if the US economy is strong and increases consumer demands, the economy of Canada will boost. US economy is growing, and this will push the country’s exports and investments to a higher level. The growth of US economy and Canada go hand in hand, as one economy grows, the other is benefitted.
The expectations from the economy in 2014 were not met and now there are high hopes from 2015 where in the economy is expected to grow along a development in the employment opportunities as well as exports. The Central Bank predicts that the economy will return to good health by mid-2015. Not all is lost for Canada, a couple of years might bring back the economy to business along with additional help from the US economy. A persistent low rate of inflation and no production growth shows that the economy has been doing something totally wrong. The Government has been trying to do all it can to bring back the economy into revival. With the low rates of interest, the household debts have reached an alarmingly high level. This could pose a problem for the economy in the near future.
Canadian economy did recover well after the major recession of 2009 but it has been limping thereafter. The fall in the demand for country’s exports has affected the economy in the most brutal manner. Any help from the US market will be welcome for Canada, especially in terms of investment and export promotions. Canada is eyeing on the recovery of the US market that will eventually be of a great help to the country. The country has lost a lot of business in the 2008-9 recession period and has not been successful in achieving the same market again. The increase in the availability of gas and the reduced prices of shale oil has also affected the economy in a negative manner. US has also seen a high productivity which has led to the fall in demand for Canadian products. Household industry has also suffered a huge loss which might still take two more years to recover.
Although the Finance Minister is optimistic about the recovery of the economy, a lot is at stake for now. A high proportion of the growth depends on the US economy which has been developing, any help from the US economy will be welcome to revive the business in Canada. The households as well as the economy is facing debts, the Bank of Canada may have to reduce interest rates yet again so as to play a positive part in the growth of the economy. In a year or two, the economy may see a complete revival and develop at a constant growth rate. For now, there are a lot of problems that need to be overcome. The business cycle is not in the peak and might take a while to reach there. Recession has left a lot to be done for the households, as well as the economy as a whole.
Bibliography
Business Cycles. (n.d.). Retrieved from Historica Canada: http://www.thecanadianencyclopedia.ca/en/article/business-cycles/
Canada's economy on thinning ice. (2013, Mar 30). Retrieved from The Economist: http://www.economist.com/news/americas/21574481-disappointing-exports-stalled-investment-and-fiscal-austerity-leave-overstretched-consumer?zid=295&ah=0bca374e65f2354d553956ea65f756e0
For the Bank of Canada, its the economy not the dollar. (2014, Jan 22). Retrieved from The Globe and Mail: http://www.theglobeandmail.com/globe-debate/editorials/for-the-bank-of-canada-its-the-economy-not-the-dollar/article16458788/
Paul Ferley, N. J. (2013, July). Current Analysis. Retrieved from Royal Bank of Canada: http://www.rbc.com/economics/economic-reports/pdf/other-reports/canada_cycle_comparison.pdf
