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At Issue

With Philip Shaw

Chatham-Kent Economy Is Not Matching the Canadian Standard

Tuesday, April 1, 2003

In the retail world, folks are suffering from what they call the "CNN effect." What that means is retail sales have suffered over the last week, because everybody is sitting at home and not going to the stores. With bombs dropping in Iraq, plus the unprecedented access of reporters on the front lines, consumers can't be blamed for being a little mesmerized.
How that is affecting our economy will be the wild card of 2003. War has differing effects on an economy depending on how long it lasts and where it takes place. I felt Gulf War II would be over in about seven days, but I was wrong about that. A war that long is a blip on the economic horizon. As the war gets longer and longer, the economic hangover tends to get greater.
With Canada not participating in this war, we won't have our government spending millions supporting a far off war effort. On the other hand, with over 80% of our trade going to the United States, we should be very concerned about the health of the American economy. So far, the Canadian economy has remained markedly isolated from the slower US economy. Remaining that way, in the wake of a longer war, will be key to sustain Canadian economic growth.
The loonie has certainly reflected the difference between the American and Canadian economy. The loonie reached 68.36 cents last Wednesday before retreating into the 67.94 range on March 31. It has gained 8% against the US dollar this year, a far cry from going the other way for what seemed forever.
The price of oil has helped the loonie. Whenever oil gets over $30 per barrel, our Alberta cousins smile. It certainly has an effect on the loonie. Add investors skittishness over the American war in Iraq, and greenback sellers have looked to the Canadian dollar. It's helped that our interest rates have been on the rise.
The Bank of Canada hiked its key overnight rate by one-quarter of a percentage point to 3 per cent on March 4, and more increases are expected April and May. High returns on Canadian debt are helping to pull in investors, with the Canadian 10-year bond yielding 5.12 per cent, compared with 3.90 per cent on the comparable US Treasury.
It's a bit of a strange economic situation. The American economy has always led the Canadian economy. In fact, my economist cousins have always had it easy because one look at the US economy would give them clues into Canada's future. Not so this time around. 9/11 changed everything. Now with war in Iraq, our American cousins are having the worst of times hitting all of their economic cylinders.
One of the problems could be an American inflationary spiral. If the war in Iraq lasts into the summer, the American government might be forced to go further into debt. This would eventually force a rise in American interest rates which will eventually force Canadian rates even higher. Economic instability would foster more of the same and unemployment would probably rear its ugly head.
Typically, economic growth rates in developed economies are very low. For instance, so far this year the Canadian economy is growing at about 2.5%. This is considered quite good for a developed economy like the one we have in Canada and the United States. Developing economies like China, Taiwan and India commonly have economic growth rates of 8-10%. Canada's numbers lead among G8 countries.
The problem is most of this economic utopia isn't hitting home in Chatham-Kent. This past week, we found out that the official close of Navistar will be July 18th. The agricultural economy in Chatham-Kent has suffered from two very droughty years. Combine both of those things and it doesn't take a rocket scientist to figure out we've missed the economic bubble so present in other parts of Ontario.
The answer to our local economic woes probably lies with the person in the mirror. Aside from that, I've always believed a little political help could go a long way. Our auto industry could sure use a boost from a provincial or federal government willing to help. With an election brewing in Ontario, that type of help needs to be on the agenda.
At the end of the day, it's a great thing our Canadian economy is still performing smartly. In Chatham-Kent, we'll just have to continue our economic high wire act. Keep our eyes on future growth. And never, never look down.




Philip Shaw, farms 830 acres near Dresden, Ontario. He holds a Masters of Agricultural Economics and Business Degree from the University of Guelph and is a well-known commentator on agricultural issues in print, on radio and over satellite in Canada and the United States. In the Chatham-Kent Times, Phil will use his frank and forthright writing style to address political and economic issues from the local to the international stage. He is a keen observer of political life at all levels, reads widely and has travelled the world to gather fodder for his column. See what's At Issue this week.