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| Professors Maria Adshade, Lars Osberg and Talan Iscan debated whether or not Canada is heading toward a recession. (Danny Abriel Photo) |
It鈥檚 hard to escape the cries of uncertainty bellowing from the business section of the newspaper. From Wall Street to Bay Street, financial watchers everywhere are deeply concerned about the state of the American economy.
Students and faculty from AV俱乐部鈥檚 Department of Economics gathered for an open forum last Friday to discuss and debate the key economic questions on everyone鈥檚 mind: is the U.S. economy in a recession, and, if so, what effect will that have on the Canadian economy?
The panel鈥檚 consensus on the first question was a resounding yes. 鈥淩ising unemployment, the loss of income鈥� you don鈥檛 have to be a rocket scientist to figure this out,鈥� explained Professor Talan Iscan. 鈥淵ou鈥檇 have to be some sort of a 鈥榬ecession denier鈥� to think otherwise.鈥�
The downturn in the American economy 鈥� driven by the effects of a bursting housing bubble 鈥� threatens to slow global economic growth that has flourished at rates unseen since the 1970s. Dr. Iscan spent much of his presentation looking at these global trends before exploring the downturn in the housing market. 鈥淭here鈥檚 a global price bubble in the housing market,鈥� he explained. 鈥淭he question is: how far will it drop?鈥�
That answer may depend on how Americans respond to a stimulus package approved by Congress and President Bush early last week. Lars Osberg, chair of the Department of Economics, worries that consumer confidence 鈥� key to an economic rebound 鈥� may be a difficult problem to tackle.
鈥淭here鈥檚 commentary in the States arguing that even $150 billion in 鈥榤oney-in-pocket鈥� type fiscal stimulus is not likely to be enough,鈥� he told the audience. 鈥淲e鈥檙e depending a lot on consumer confidence being positively affected, but how much can that effort to rebuilt consumer and investor confidence offset some of these fundamentals that people see in their own portfolio?鈥�
If the American economy is headed towards hard times, does that mean Canadians should also feel less confident about their own economic situation? Not necessarily, as Marina Adshade explained. With strong employment numbers last year, an expansion in household credit (unlike in the States) and positive effects from the GST cuts of the past two years,聽she聽argued that there鈥檚 a solid groundwork for the Canadian economy to maintain a reasonable degree of strength.
Of particular note is the high Canadian dollar, which Dr. Adshade said is keeping inflation in check as Canadians demand price parity with the American market. This allows the Bank of Canada more flexibility to enact policies to increase demand 鈥� such as lowering interest rates 鈥� without increasing inflation at the same time.
The bottom line: 鈥淭here鈥檚 nothing in the current information that says that Canada is currently in a recession,鈥� said Dr. Adshade, assistant professor in the Department of Economics.
There are still areas of concern, however. One is that net exports to the U.S. are down slightly, a number that could take a significant hit if the American stimulus package fails to increase American consumer spending. The biggest question, though, is how Canadians react to the news south of the border.
鈥淚t concerns me because when you listen to the radio and read the newspaper, there鈥檚 not a lot in there this week and last week to build consumer confidence,鈥� said Dr. Adshade. 鈥淪o if we see Canadian households start to scale back on spending, there鈥檚 a possibility we won鈥檛 be in as strong a position.鈥�