Three vulnerabilities led to Canadian recession

Despite having the most robust regulatory environment for its financial and banking sector in the world, three vulnerabilities of Canada’s economy could not prevent it from taking a hit in the current global financial turmoil, said Douglas Porter, deputy chief economist at BMO Capital Markets. Porter spoke at the Canadian Association of Mutual Insurance Companies’ mid-term meeting in Toronto about the state of the Canadian, US and global economy.Technically, Canada’s economy will fare better than the other G7 countries because of its stringent regulations for the financial sector, but this difference will merely be “shades of grey,” Porter said.“So, why is it that Canada did not hang in there better?” he asked.Canada has three specific vulnerabilities that outweigh the positives of its stringent regulatory system and lack of housing problem similar to that in the US, Porter said. These vulnerabilities include:1)    a reliance on commodity prices – That was a very good thing until the middle of 2008, he said. But, commodity prices have tumbled 50% in the past six months.2)    A reliance on the auto sector  — as a share of our economy, the manufacture of automobiles made up 2% of our economy, and 5% of Ontario’s, compared to 1% in the U.S.. “So, when you hear that US auto sales have hit an all-time low, it’s just as bad news for Ontario’s economy as it is for the US economy.”3)    Our housing boom lasted longer than the US, and we’re only starting to feel the downside of it now. “It’s likely not going to be the same horror show that we saw in the US housing sector, but we are going through the grips of a very serious crunch in the housing sector,” Porter said.Despite these vulnerabilities, Porter predicted that Canada’s economy will make a mild recovery in 2010, but that it would not return to the level that it was pre-Sept. 2008.