Canadian economic growth is in jeopardy if U.S. lawmakers don’t raise their country’s debt ceiling, the Conference Board of Canada said today in a report.
Glen Hodgson, senior vice-president and chief economist of the Conference Board, said mediocre U.S. economic growth would further risk the Canadian outlook and hurt the automotive and forestry sectors, which are dependent on exports to the U.S. market.”
The report noted that the 2008 - 2009 recession caused government revenue to shrink rapidly, while stimulus spending to help kick-start the U.S. economy added to the fiscal deficit.
U.S. public debt accelerated from 40% of gross domestic product (GDP) to more than 70% in just three years. Currently, federal revenue is only around 15% of GDP, while expenditures are well above 20%, creating a significant structural deficit, Hodgson said.
The report advised:
- Canadian governments to stick to the plans they have already introduced to balance their fiscal books in order to strengthen Canada's capacity to sustain external shocks;
- That slower U.S. economic growth combined with U.S. fiscal problems would have a further negative impact on Canadian export growth to the U.S., which has seen its share steadily fall from a peak of 85% in the early 2000s to about 70%, due to the soaring loonie; and
- That inflation is creeping up, causing short-term interest rates to increase, pushing up the loonie and making export diversification increasingly necessary.
Jennifer Harrison