Wednesday, September 24, 2008

Canadian Economy Remains Stable, For Now

Financial Times - Stable Deposits Buttress Canada's Banks
Globe and Mail (Toronto) - Canada Could Face Housing Woes, Merrill Warns
Bloomberg - Canada Stocks Fall

Canada's housing and mortgage markets have remained relatively stable despite the United States' financial crisis. Nevertheless, the Canadian stock market continues to fall because of the continuing global credit crunch as well as expectations of slower U.S. economic growth. The U.S. is Canada's biggest trading partner.

Canada's housing and mortgage markets are more stable than those in the U.S. Canadian lenders have not issued subprime mortgages to the extent of U.S. lenders, and Canadian residential property does not appear to be significantly overvalued. Canada's banks are also currently more stable than their U.S. counterparts. Although Canadian banks have had writedowns due to exposure to the U.S. subprime market, Canadian banks have a stable base of domestic deposits.

However, some experts such as Merrill Lynch Canada have warned that Canada may go through a period of financial turmoil in the near future, citing the high average level of debt in Canada. Household debt in Canada currently averages six percent of income, putting it near the record-high U.S. level in 2005 before the mortgage crisis. Others argue that lenders have been considerably more conservative in Canada than in the U.S., and that current Canadian household debt is not "risky."

Canada's stock market index fell for a third straight day, mainly on news of the U.S. government's announced financial bailout. The Canadian stock index has declined more than nine percent in September, the most in a month since 2001.

1. How has Canada, a large and integrated trading partner of the U.S., been able to avoid the economic meltdown occurring among U.S. banks and investment firms?
2. What is the relationship between a falling Canadian stock market and the health of its financial sector, including banks and mortgage lenders?

1 comment:

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