Publisher: Economy Watch

Date Published: March 11, 2010

Article Title: Canada Economy
Canada is the 9th largest economy in the world based on GDP (current prices, US dollars)
and the 14th largest based on GDP (PPP). Since the 2008 global financial crisis, the Canadian
economy has re-emerged as one of the strongest advanced economies in the world. In 2010,
Canadas GDP growth (constant prices, national currency) stood at 3.071 percent the highest it
had been since 2004.
Prior to World War II, agriculture was the primary driver of the Canadian economy with over 60
percent of the population living in rural towns or farms. Canada had struggled to recover from
the Great Depression, with Gross National Product falling by 43 percent and exports dropping by
50 percent between 1929 and 1933. By 1933, unemployment had risen to more than 25%.
World War II marked a major transformation in the Canadian economy. Manufacturing, mining
and services grew rapidly to meet the demands of the war and agriculture production became
more mechanized and efficient.
As a result, there was an upturn in industrial production and manufacturing in Canada. New jobs
were also being created while industries benefitted from a highly trained and diversified labor
force that had arisen during the war.
Today, the Canadian economy strongly resembles that of its neighbor to the south, the US.
Besides having similar patterns of production and living standards, Canada has also adopted a
market oriented economic system.
However unlike the US or most other advanced economies, Canadas primary sector, namely
the logging and oil industries, remains an important element to the economy. Canadas
manufacturing industry is also highly valued by the economy the automobile industry for
example attracts major investments from US and Japanese automobile companies with multiple
manufacturing plants set up in Canada.
Canadas economy also distinguishes itself from the US, whereby it is a net exporter of
commodities while the US is a net importer. Furthermore, the Canadian banking industry is
considered to be fairly conservative compared to that of the US.
Despite the differences, Canadas economic progress is closely tied to that of the US. Following
the signing of the 1989 US-Canada Free Trade Agreement (FTA) and the 1994 North
American Free Trade Agreement (NAFTA), trade and economic integration between both
countries have increased significantly. The US is Canadas largest foreign investor with heavy
investments in mining, smelting, petroleum, chemicals and machinery. Often, Canadian
economic policies have been adjusted in order to adapt to changes in the US economy.
Historically, even a minor change in the US interest rates has had economic repercussions in
Canada.

Canadas Export, Import and Trade

Although NAFTA dramatically improved trade between the US and Canada, disputes still remain
pertained to intellectual property rights, softwood lumber, beef, tomatoes and other agricultural

products.
The US is Canadas largest and most important trade partner. In 2009, 75.02 percent of
Canadian exports were directed to the US, while 51.1 percent of imports came from the US.
Commodities dominate trade between the US and Canada. In agriculture, both countries are its
counterparts largest export market the US imports more than half of Canadas food products
while Canada imports nearly 20 percent of the USs food product.
The energy trade is another critical element in US-Canada trade. Canada is the USs largest oil
supplier, accounting for 16 percent of US oil imports and 14 percent of USs natural gas
consumption. Besides sharing hydropower facilities on the western borders, national electricity
grids in Canada and the US are also linked with each other.
The UK and China are Canadas next largest export partners after the US. Respectively, these
countries account for 3.37 and 3.09 percent of Canadas exports. China is also the second largest
source for imports to Canada, accounting for 10.88 percent of imports. In 2010, Canada was the
10th largest exporter and 12th largest importer in the world.

The Canadian Economy in Brief: Canadas Economic Structure

Historically, much of Canadas exports have been derived from its natural resources. Canada
contains a rich abundance of mineral, forest and water-based resources such as iron ore,
nickel, zinc, copper, gold, lead, rare earth elements, molybdenum, potash, diamonds, silver,
fish, timber, wildlife, coal, petroleum, natural gas and hydropower.
Although fishing and forestry were once major Canadian industries, mineral and energy
resources have become the leading source of income for the nation. Canada is the world leader in
value of mineral exports with energy resources providing for a vast amount of profit. Canada is
a net exporter of energy, exporting 2.151 million barrels of oil per day and 94.67 billion
cubic meters of natural gas in 2010. As a result, Canada is the 10th largest exporter of oil and
the 3rd largest exporter of natural gas in the world. In addition, Canada has the 2nd largest
proven reserves of oil in the world together with the 21st largest proven reserves of natural
gas.
Although energy and mineral resources have greatly strengthen the Canadian economy, the
emergence of these industries has led to an economic imbalance within Canada. In recent years,
Western Canada has seen rapid economic growth with its abundance of oil. Central Canada on
the other hand, contains much of its services and manufacturing industries. However, the four
Atlantic Provinces of Canada, New Brunswick, Prince Edward Island, Nova Scotia and
Newfoundland and Labrador have seen a major decline in its economic activity since the 19th
century as its primary focus is in the fishing industry. As such, these regions have begun to
diversify their economy with Newfoundland and Labrador leading the way in new oil and gas
exploration.
Canada is the second largest country in the world in terms of land area behind Russia and

ahead of the US. In 2010, its population was 34.059 million with a labor force of 18.59
million.
Despite having the 9th largest labor force participation rate in the world, Canada faces an aging
labor force. Between 1991 and 2001, the average age of the Canadian labor force grew from 37.1
to 39 years old.
Immigration has been seen as a solution to its labor force problems. According to Canadian
census data, migrants to Canada during the 1990s are now responsible for nearly 70 percent of
labor force growth.
In 2010, 15.9 percent of Canadas population was above the age of sixty five, 68.5 percent were
between the ages of fifteen and sixty four while 15.7 percent were aged fourteen and below.
Canada also has an extremely low population growth rate of 0.794 percent.
The Canadian labor force is split among numerous industries. According to the latest available
data from 2006, 2 percent worked in agriculture, 13 percent in manufacturing, 6 percent in
construction, 76 percent in services and a further 3 percent in other industries.
Canadas Industry Sectors
As for its economy, agriculture was responsible for 2 percent of Canadas GDP in 2010, with
industry accounting for 20 percent and services completing the pie at 78 percent.
Despite contributing to only 2 percent of Canada GDP, Canadian agricultural products are
among the most widely sought of in the world. Canada is one of the world's largest suppliers of
agricultural products they lead the world in lentils, linseed, mustard seed and peas and among
the top ten producers of barley, blueberries, cranberries, mixed grain, oats, rapeseed, pork, wheat,
turkey, raspberries, rye, soybeans, beef, mushrooms, chick-peas and maize.
Canadas agriculture industry benefit from government subsidies and supports. However,
the country is also an advocate of reducing market subsidies from the WTO. In 2000, Canada
used only US$848.2 million of its US$4.3 billion subsidy allowance granted by the WTO.
After the 2008 financial crisis, Canadas record a negative industrial production growth rate in
2009 after a long period of positive growth. The industrial production growth rate, which
measures the annual percentage increase in the countrys manufacturing, mining and
construction, recovered in 2010 growing by 5.8 percent.
In 2010, the list of key Canadian industries includes transportation equipment, chemicals,
processed and unprocessed minerals, food products, wood and paper products, fish products,
petroleum and natural gas.
Canadian services such as retail, business, education and health are also amongst the strongest in
the world, having benefited from modern technology and processes. Canada's major banks for
example did not suffer as badly as those in the US during the global financial crisis thanks to
the financial industrys tradition of conservative lending practices and strong capitalization.
Canadas finance and banking industries are amongst the fastest growing in the world with
potential for further growth.

Canadas Economic Forecast

In 2011, The Canadian economy is expected to see modest growth on the back of similar
growth patterns in the second half of 2010. According to the Canadian Chamber of
Commerce, economic activity in 2011 will be tempered as federal and provincial governments
curtail fiscal stimulus and then step up their efforts to restrain spending. Much of Canadas
economic growth will also rely on domestic demand as well as demand from the US.
In 2010, Canadas GDP (PPP) was US$1.330 trillion. Significantly, this was 4.05 percent higher
than it was in 2009. From 2011 to 2016, Canadas GDP (PPP) is expected to increase annually by
3.66 to 4.04 percent before reaching US$1.665 trillion. This will make Canada the 13th largest
economy in the world according to GDP (PPP).
Similarly, Canadas GDP (PPP) per capita is also expected to grow by a slow but consistent rate
from 2011 to 2016. In 2009, Canadas GDP (PPP) per capita fell by 2.75 percent to
US$37,970.90. The subsequent recovery in 2010 followed by annual growth of anywhere
between 2.20 to 2.71 percent will see Canadas GDP (PPP) per capita hit US$45,108.04 by the
end of 2016.
Despite strong economic growth in the first half of 2010, job creation slowed in the second half
of the year. As a result, unemployment rates still remain relatively high. In 2010, the
unemployment rate in Canada was 7.992 percent. Although this was an improvement from
2009s unemployment rate of 8.292 percent, it is still considerably higher than pre-financial
crisis levels. Canadas unemployment rate is expected to gradually improve and return to
pre-financial crisis levels by 2015. From 2015 to 2016, the unemployment rate is expected to
remain consistent at 6.1 percent.
Since 1992, Canadas inflation rate has never gone above 2.75 percent. Apart from
abnormalities in 1994, 1998 and 2009, where inflation dropped below 1 percent, the
inflation rate in Canada has remained fairly consistent and well anchored within the Bank
of Canadas operational target of 1 to 3 percent. According to the Canadian Chamber of
Commerce, a strong currency, relatively high unemployment, modest salary gains and a
significant output gap will continue to help withstand any inflation pressures in the future.
In 2011, Canadas inflation rate (average consumer price change) is expected to be at 2.231
percent. From 2012 to 2016, the inflation rate is expected to hover between 1.9 percent and 2.03
percent.
From 1999 to 2008, Canada possessed a current account balance surplus. However, in the
advent of the financial crisis, Canada now has the 7th largest current account balance deficit
in the world behind the US, Spain, Italy, France, Brazil and the UK. In 2008, Canadas current
account balance stood at US$6.483 billion. However, by the end of 2009 this figure changed to
become negative US$38.075 billion. In 2010, the deficit increased further to negative US$48.515
billion. Canadas current account balance deficit is expected to increase marginally to negative
US$49.056 billion by the end of 2011, before gradually decreasing in the next few years. By the
end of 2016, Canadas current account balance deficit will fall to negative US$26.871 billion

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