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Canada Manufacturing Shipments Show Strength

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Canada Manufacturing Shipments Show Strength

Statistics Canada have released the February’s Manufacturing Shipments data, this is showing a rise on the month of 1.4%, this release had been expected to be in the region of 1.0% following January’s 1.5% reading. The Manufacturing Shipments number is typically considered a minor indicator however Canada like most developed economies is looking to trade to lead the recovery.

The International Monetary Fund (IMF) has reinforced Canada’s consideration of international trade as a key growth driver over the coming months. While generally bullish on the Canadian economy, not a typical stance from the IMF, their chief economist earlier in the week claimed that “although external demand could surprise on the upside, downside risks to the outlook still dominate, including from weaker-than-expected exports resulting from competitiveness challenges, lower commodity prices, and a more abrupt unwinding of domestic imbalances”.

The weakness in the Canadian Dollar over the past 12 months, particularly against the currency of it’s largest trading partner, the US, has maintained trade balances in the region required for growth. The IMF, and no doubt the Canadian authorities, will be concerned that any relative strengthening of the Canadian Dollar will have a detrimental impact on trade balances, of particular concern is any signs that the US recovery begins slow.

Canada as a major commodity exporter is also particularly vulnerable to shocks to commodity prices. The Chinese situation is weighing somewhat on export prices as the world’s second largest economy undergoes a slowdown in growth, this is reducing demand for raw materials and consequently hurting Canada’s major mining sector. Additionally, as the Chinese allow their currency to float freely it opens up the risk that the Yuan depreciates and that the subsequent effect on import prices further reduces demand.

Finally, Canada is a heavily unionized economy, this keeps upward pressure on wage rates and consequently affects international competitiveness. On balance the opportunities for Canadian growth currently outweigh the risks, the point however that the IMF was making is that most of these opportunities are out of the control of the Canadian authorities.

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