TPT January 2009

From the AmericaS

In Latin America, Brazil’s booming growth is expected to cool a bit to 5.2 per cent in 2008, from 5.4 per cent in 2007. Mexico’s economic growth will likely slow to 2.1 per cent, from 3.2 per cent the previous year. The neighbours What does the ‘economic Pearl Harbor’ in the US mean for Canada? Columnist David Olive, who writes about business and political issues in the Toronto Star, posed that rhetorical question and commenced to answer it. Despite Canada’s close proximity to the epicentre of America’s worst financial crisis since the Great Depression of 1928-1932, Mr Olive declared, Canadians are “in surprisingly good shape, all things considered.” (‘Why Canada may dodge US crisis,’ 4 October). Clearly of the same mind, Canadian prime minister Stephen Harper had said the day before: “The economic and financial mess in the United States is disastrous. The policies have been irresponsible. We’ve made different choices in Canada. We are not bailing out companies in Canada.” Companies were being bailed out in the US, and without any guarantee that the $700 billion rescue mission mounted by Congress would arrest the credit crisis and the threat it holds of triggering a global recession. In the view of Warren Buffett, the legendary American stock-picker and designated wise man, the state of affairs south of the Canada-US border constitutes “an economic Pearl Harbor.” The rosier prospects in Canada rest primarily on that country’s stronger job market and healthier banks, which cushion the effects of a stock market susceptible to oil-industry gyrations. Despite tumbling commodity prices and the recent plunge of Toronto’s benchmark Standard&Poors/TSX index to its lowest level in more than two years, the Star’s Mr Olive was able to claim that the wider Canadian economy was doing well. He wrote: “The well-publicized loss of manufacturing jobs, concentrated in Central Canada, amounts to 353,000 jobs since 2002. But in that same six-year period, Canada generated a net increase of 1.5 million new jobs, and not only in relatively low- paying . . .sectors but professional, scientific, and technical services

as well. Average hourly wages were $20.41 in 2007, up from $17.66 in 2002. And unemployment figures for Canada and the United States are going in opposite directions. The Canadian jobless rate for September was 6.1 per cent, down from 7.5 per cent in 2002. The US unemployment rate also is 6.1 percent, but that’s up from the 4 per cent to 5 per cent range earlier in the decade.” And Canada’s good news goes on: › While Canadian housing prices have retreated in various areas, the declines are far from the 30 to 70 per cent drops experienced in the hardest-hit US markets (California, Florida, the Midwest), where foreclosures resulting from defaults on subprime loans are concentrated and have created a glut of unsold houses. › The Canadian banking sector is sound, having for the most part resisted the packages of US subprime loans on offer at the top of the US housing market. Canada has stricter rules on capital ratios that banks must maintain and a higher level of regulatory scrutiny of banking than the United States. › Household debt is high in both countries, but a stronger job market in Canada makes that less of a worry there than in the US. As if all this were not enough, Canada is the sole member of the Group of Eight industrialized nations to have registered successive federal budget surpluses over the past decade. As such, it is much better positioned than the other G-8’s to provide fiscal stimulus if its economy should falter. Short of a global recession, ‘relatively healthy’ Latin America can expect to withstand the fiscal unrest to its north Reporting from Rio de Janeiro in the New York Times, Alexei Barrionuevo supplied an early appraisal of Latin America vis-à-vis the fiscal turmoil spreading from the US to Europe, awakening fears of global recession and sharp curbs on development in many of the world’s fastest-growing economies ( ‘Emerging markets find they aren’t insulated from the tumult,’ 7 October). Many economists expect that the regulatory reforms undertaken to shore up the Latin American banking sector in the wake of previous

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J anuary 2009

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