What Makes Canada's Economy Unique

Economic

Summary:

Explore the key factors that make Canada's economy stand out on the global stage. Learn about its diverse sectors, trade relationships, and role in global markets.

Canada’s economy is often regarded as one of the most resilient and diversified economies in the world. With a robust natural resources sector, a dynamic service industry, and strong international trade relationships, Canada continues to hold a prominent place in the global economy. But what exactly makes Canada’s economy so unique? In this article, we’ll explore the key factors that shape Canada's economy, from its rich resources to its progressive policies, and how these elements come together to create a stable and growing economy.

Natural Resources and Energy Sector

One of the most defining features of Canada’s economy is its abundance of natural resources. From vast forests and freshwater lakes to rich deposits of oil, gas, minerals, and metals, Canada is blessed with an abundance of natural wealth.

The Canadian oil sands, located primarily in Alberta, are among the largest reserves of crude oil in the world, and oil exports remain a key driver of Canada’s economy. In addition to oil and gas, Canada is also a significant exporter of minerals, including gold, copper, and potash, and is one of the world’s largest producers of timber and wood products.

This rich natural resource base has made Canada a key player in the global energy market and has spurred the growth of industries related to energy extraction, transportation, and refining. The reliance on natural resources, however, also means that Canada’s economy is somewhat dependent on global commodity prices, which can fluctuate due to geopolitical events or shifts in global demand.

Diverse and Growing Service Sector

In addition to its resource-rich economy, Canada has developed a diverse and growing service sector. This sector, which includes finance, healthcare, education, technology, and professional services, accounts for a large portion of Canada’s GDP.

Canada’s financial services industry is one of the most stable and well-regulated in the world, with Toronto serving as a global financial hub. The country’s banking system is known for its resilience, especially during times of global financial crises. The highly skilled labor force, coupled with favorable policies, has also helped drive the growth of technology and innovation in Canada. Cities like Toronto, Vancouver, and Montreal are home to thriving tech hubs that attract investment from around the world.

Canada’s healthcare and education sectors are also key contributors to the country’s economic growth. With a world-class healthcare system and a highly educated population, Canada is well-positioned to continue its economic growth in the years to come.

Trade Relationships and Global Integration

Canada’s economy is deeply integrated into the global market, with international trade playing a vital role in its growth and prosperity. As one of the world’s largest trading nations, Canada maintains strong trade relationships with its neighbors and partners around the world.

The United States is by far Canada’s largest trading partner, with both countries enjoying a robust trade relationship under agreements like the United States-Mexico-Canada Agreement (USMCA). This close economic relationship benefits both nations, particularly in industries such as automotive manufacturing, agriculture, and technology.

In addition to the U.S., Canada has built strong trade relationships with countries in Europe, Asia, and Latin America. For example, Canada’s free trade agreement with the European Union (CETA) has opened up new opportunities for Canadian businesses to expand into European markets. The country’s increasing engagement with Asian markets, particularly China and Japan, further highlights Canada’s global trade footprint.

Inclusive and Stable Government Policies

Canada’s political stability, transparent governance, and inclusive policies are also critical elements that contribute to the country’s unique economic environment. The Canadian government is known for its commitment to promoting social welfare, reducing poverty, and fostering an inclusive economy. This is reflected in policies that encourage labor force participation, support for innovation, and a strong social safety net.

Canada has also made strides in promoting sustainability, with policies aimed at reducing greenhouse gas emissions, protecting natural habitats, and transitioning to renewable energy sources. These forward-thinking policies ensure that Canada remains competitive while addressing key global challenges such as climate change and sustainability.

Immigration and Labor Force

Another distinctive characteristic of Canada’s economy is its immigration policies. Canada is known for its open and inclusive immigration policies, which have helped diversify the country’s labor force and strengthen its economy.

Immigration has played a key role in boosting Canada’s population and labor market. Skilled workers from around the world are drawn to Canada’s high quality of life, strong economy, and welcoming attitude toward immigrants. This influx of talent has helped fuel innovation and creativity in sectors ranging from technology and healthcare to business and engineering.

Conclusion: A Unique and Resilient Economy

Canada’s economy stands out due to its diverse and resource-rich landscape, its strong financial and service sectors, and its commitment to inclusive and sustainable policies. As a global leader in trade, innovation, and resource extraction, Canada is well-positioned to continue thriving in an ever-changing global economy. Whether it’s the strength of its natural resources, the dynamism of its technology sector, or its stable political environment, Canada’s unique economic makeup allows it to adapt to global challenges while maintaining long-term growth and prosperity.

As Canada moves forward, its focus on diversifying its economy and expanding its international trade relationships will ensure that it remains a key player in the global economic landscape.

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Justin

Economic

The global economy will underwhelm in 2025. Policy-makers may be satisfied with global growth rates around 3%. But they are failing to address fundamental challenges and the global economy is muddling along, a far cry from the 4% and higher average rates in past decades. US President-elect Donald Trump’s trade policies could deal a rude shock to the outlook. Meanwhile, the termites keep feasting away at the global economic foundations.

US growth may ease over the year, but many forecasters still see growth around 2.25%. The irrepressible consumer will help avert a downturn, putting paid again to the hard landing crowd. US economic non-policy remains a mess.

Euro area growth should ‘numerically’ pick up but remain weak, especially in Germany, which may witness a dead cat bounce. However, PIGS (Portugal, Ireland, Greece and Spain) will fly.

Chinese policy-makers are shifting towards cautious monetary and fiscal stimulus, but won’t overcome the economy’s massive structural debt, housing, deflationary and confidence headwinds. In the spring, authorities will post a growth target perhaps of around 5% and they’ll hit it one way or another. India remains somewhat a bright spot.

Japan’s 2025 growth rate will bounce back, supported by wage gains and because 2024 gross domestic product was held down by a sharp first quarter contraction.

Latin American growth remains hampered by longstanding productivity and corruption problems, with Brazil’s financial woes intensifying and US-Mexican relations undermining confidence. Argentina may be the star!

Fragmentation and flailing multilateralism

The major economic strides of the last 80 years were facilitated by America’s hegemonic power and the security structure it offered within which to pursue the liberal order.

But America’s relative global weight has waned and the US turned somewhat inward. After the 2008 financial crisis, the G20 was touted as the premier forum for international economic co-operation. But it then floundered, riven by Russia’s brutality against Ukraine, poor performance in many emerging markets, Trump’s isolationism and bellicosity, and fraying US-China relations.

The US, Europe and Japan reconnected in a revitalised, cohesive G7 on issues such as financial sanctions, cybercrime, anti-money laundering and helping Ukraine against Russia. But that unity too is likely to fray as Trump 2.0 injects uncertainty and volatility.

Liberal trade and investment are under siege

The Joe Biden administration was little different than a revanchist Trump 1.0. Now, Trump 2.0 threatens 25% tariffs on Mexico and China – America’s two largest trading partners – while across the board tariffs of 10% to 20% would batter Europe and 60% China. If implemented, a massive hit to global growth will be delivered. Some suggest the tariff threats are merely a negotiating tactic for unspecified concessions. Who knows?

Protecting national security is essential. But much is simply protectionism. Is America truly afraid that Chinese solar panels and electric vehicles will undermine national security? Is a mothballed steel plant and lost jobs better than one owned by a firm from the country of a close ally that protects jobs?

Decoupling continues amid growing US-China tensions

Everybody in the US is a China hawk. The only question is how big the talons are. The US is possibly on the verge of banning TikTok, further cutting off less-than-advanced chips, adding more firms to the entity list, on top of tariffs.

President Xi Jinping will stand up to Trump and China will retaliate. US levers on China are not as strong as under Trump 1.0. But China is not doing itself any favours in the West’s eyes by embracing President Vladimir Putin, looking indifferently on Russia’s war against Ukraine and fomenting hostility in the South China Sea.

Europe remains weak and divided

Trump is dismissive of Europe, America’s staunchest ally. The French government remains stalemated. No matter who runs Germany, economic policy is hamstrung and the country’s growth model broken. Surprisingly, Italy is Europe’s island of stability in a stormy sea.

Skirmishing between European Union member states and Brussels will continue. A divided Europe disdainful of Trump 2.0 won’t formulate a coherent response.

Poor macroeconomic policy, squeezed real incomes undermine public trust

Inflation is down but productivity growth languishes, squeezing real incomes and bolstering insecurity and populism.

Public debt is high in the US, much of Europe, Japan and China. In the US, the fiscal trajectory is unsustainable. Trump is likely to boost deficits from the already absurdly high level of 7% of GDP, pushing up longer-term rates, hurting investment and causing market indigestion. Will bond vigilantes return?

European high-debt countries will seek to restrain deficits, and Germany won’t pursue major workarounds from its rigid debt brake. Structural reform will continue to flag as policy-makers are wary of political fallout from adjustment costs.

China has some fiscal space at the centre, but is cautious in using it, let alone helping consumers rather than overhauling its inefficient investment and export-led growth model.

At some point, the fiscal chickens and unwillingness to revamp growth models will come home to roost. Further real income squeezes are likely and huge bouts of market volatility may be a sign of more trouble.

The 2025 global economy will underwhelm. America’s relative economic and political weight is still strong, but waning. Across the world, political fragmentation, hits to globalisation, uncertainty, flailing multilateralism, poor economic policy and mediocre leadership will accelerate the weakening of the global fabric. There are many culprits, but the US is at the heart of this own goal.

Source:Mark Sobel

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Alex

Economic

The yen is slightly higher on Friday. In the European session, USD/JPY is trading at 157.89, down 0.12% on the day.

Japan’s household spending continues to decline

Japanese consumers are holding tight on the purse strings and that could spell tr0uble for Japan’s fragile economy. Annually, household spending declined by 0.4% in November, following a 1.3% decline in October and above the market estimate of -0.6%. This marked a fourth straight decrease. Spending was weak in most categories, with the exceptions of housing and education. Monthly, household spending rose 0.4%, well below the October gain of 2.9%, which was a 14-month high. The reading easily beat the market estimate of -0.9%.

The household spending report comes on the heels of the November wage growth report, which was mixed. Nominal wages jumped 3% but real wages, which are adjusted for inflation, came in at -0.3%, marking a fourth consecutive month of negative real wage growth.

US nonfarm payrolls expected to decelerate

The US wraps up the week with nonfarm payrolls for December. With inflation largely in check, the Federal Reserve is keeping a close eye on the health of the labor market as the Fed reduces interest rates. The labor market has been cooling slowly but not deteriorating too quickly and the Federal Reserve would like to keep it that way. Nonfarm payrolls are expected at 160 thousand, after a gain of 227 thousand in November.

The Federal Reserve minutes had little impact on the movement of the US dollar but were significant in reiterating that the Fed plans to go slow on rate cuts in 2025. The minutes raised concern about the upside risk of inflation due to Trump’s pledges to enact tariffs and respond to illegal immigration with mass deportations. The Fed can be expected to gradually cut rates, which likely means increments of 25 basis points.

USD/JPY Technical

USD/JPY is testing support at 158.04. Below, there is support at 157.69

There is resistance at 158.51 and 158.86

Source: ACTIONFOREX

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Alex

Economic

Germany recorded the highest number of company insolvencies since 2009 in the last quarter of last year, a study from the Halle Institute for Economic Research (IWH) showed on Thursday, reflecting high interest rates and increased prices.

The fourth quarter of 2024 saw 4,215 company insolvencies with almost 38,000 jobs affected, according to the study, a level unseen since the financial crisis in mid-2009.

Compared with the fourth quarter of 2023, the number of insolvencies at the end of last year rose by 36%, as calculated by IWH.

The institute attributes the negative development only partly to the current economic crisis and increases in the cost of energy and wages.

"Years of extremely low interest rates have prevented insolvencies, and during the pandemic, insolvencies have failed to materialize due to subsidies such as short-time work benefits," said Steffen Mueller, head of insolvencies research at IWH.

The rise in interest rates and the elimination of subsidies have triggered catch-up effects in insolvencies from 2022, Mueller said.

Across sectors, the highest growth in insolvencies was in the services sector, growing by 47% year-on-year, compared with 32% in the manufacturing sector.

Source: Theedgemarkets

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Justin

Central Bank

Even if the Bank of Japan were to raise its inflation forecast, the upgrade alone won't lead to an interest rate hike if it is driven by temporary factors such as the rising price of rice and higher import costs, said three sources familiar with the bank's thinking.

The BOJ could hike rates this month if the board is convinced that sustained, broad-based wage hikes will take hold, and keep inflation durably at its 2 per cent target, they said.

"Risks to inflation are skewed to the upside due partly to renewed yen falls," said one of the sources, a view echoed by another source.

"Wage momentum also appears to be strong," a third source said, adding the board may discuss revising up its inflation forecast for the fiscal year beginning in April.

The BOJ will likely debate whether to raise interest rates from the current 0.25 per cent at its policy meeting on Jan. 23-24. It will also issue fresh quarterly growth and price forecasts that serve as the basis for setting monetary policy.

Under current forecasts, the board expects core consumer inflation to hit 1.9 per cent for both fiscal 2025 and 2026. While the board has yet to discuss details of its forecasts, recent data and surveys have pointed to rising inflationary pressures.

The yen is currently hovering at 158 to the dollar, down from around 140 hit in September and near levels hit when the BOJ hiked rates in July last year.

Core inflation accelerated in November to 2.7 per cent as the weak yen pushed up import costs, adding to stubbornly high prices of rice.

Rising wages are adding to inflationary pressure, backing up the BOJ's argument that Japan is on track to sustainably achieve its 2 per cent inflation target - a prerequisite for further rate hikes.

Wage hikes are spreading to companies of all sizes and sectors, the BOJ said in a quarterly report on Thursday, signaling that conditions for a near-term rate hike were continuing to fall into place.

"The need to raise pay is more widely shared among small firms," Kazushige Kamiyama, the BOJ's Osaka branch manager, told a news briefing on Thursday. "We can expect solid wage gains this year."

While such optimism heightens the chance of a rate hike at the BOJ's January meeting, Governor Kazuo Ueda has flagged uncertainty over U.S. President-elect Donald Trump's policy as a reason to tread cautiously in pushing up borrowing costs.

If comments and policies announced after Trump's inauguration on Jan. 20 trigger volatile market moves, the BOJ could put off hiking rates again, some analysts say.

Markets are focusing on BOJ Deputy Governor Ryozo Himino's speech and news conference on Tuesday, for fresh hints on whether the bank could hike rates this month.

Source: Reuters

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ING

Economic

US jobs confirm a January Fed hold

The US jobs report shows payrolls rose 256k in December versus the 165k consensus figure. Revisions to the past two months were -8k. The unemployment rate has fallen to 4.1% from 4.2% – the consensus was for it to hold at 4.2% with the risk skewed towards a 4.3% outcome. Wage growth was 0.3% month-on-month with the year-on-year rate slowing to 3.9% from 4%. All of this provides clear backing for a no change interest rate decision from the Federal Reserve later this month. There are two payrolls reports ahead of the March Federal Reserve FOMC meeting and there will be the annual benchmark revisions next month. These are widely expected to see some significant downward revisions, but in general the recent run of reports suggests the market is right to see the risk of an extended pause from the Fed. That view will only increase if core inflation comes in at 0.3% MoM for a fifth consecutive month next week.

Change in non-farm payrolls (000s)

US Jobs Report Heightens Chances of an Extended Fed Pause_1

Job composition the one criticism

The details tell the usual story of the strength being led by the same three sectors – private education & healthcare services (+80k), leisure and hospitality (+43k) and government (+33k). They have contributed 78% of all the jobs added over the past two years and in our view that is one criticism that can be levied on the jobs story. These sectors are typically lower paid, less secure and more part time in nature than the 'typical job'. Moreover, for the traditional engines of US growth, such as business services, financial services, technology, transport and logistics, manufacturing, construction, etc to have contributed just 1.22mn of the 5.2mn jobs added over the period is disappointing – since government alone has added 1.15mn!

Cumulative change in US non-farm payrolls over past two years (000s)

US Jobs Report Heightens Chances of an Extended Fed Pause_2

Growing prospects of an extended Fed pause

This time around there was a surprise gain of 43k in retail trade though. On the weaker side we see manufacturing falling 13k while mining & logging posted a 3k drop and wholesale trade fell 4k, but that doesn't change the story of a decent report. It also shows that the slowdown in jobs creation has been more muted than previously thought. Non-farm payrolls averaged 207k in the first half of the year and 165k in the second half of the year.

A January no change decision from the Fed is now guaranteed – the market is pricing less than 1bp of a 25bp rate cut – and the risk of an extended pause has increased with the market no longer fully discounting a rate cut until September. That said, we do have two jobs reports ahead of the March FOMC meeting and we will have the annual benchmark revisions. The preliminary estimate of revisions showed that after cross referencing with tax data the Bureau of Labor Statistics admitted to having overestimated job creation by one-third between April 2023 and March 2024. We will get confirmation next month with revisions to subsequent data too. That could yet change the story, but for now we have to admit that our forecast of three rate cuts in 2025 may be too aggressive.

Source: ING

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Owen Li

Economic

The highly anticipated United States (US) Nonfarm Payrolls (NFP) data for December will be published by the Bureau of Labor Statistics (BLS) on Friday at 13:30 GMT.

The December jobs report is critical to the US Dollar’s (USD) next directional move as it will help the markets gauge future interest rate cuts by the US Federal Reserve (Fed) amid the incoming administration of President-elect Donald Trump.

What to expect from the next Nonfarm Payrolls report?

Economists expect the Nonfarm Payrolls report to show that the US economy added 160,000 jobs in December after witnessing a stellar 227K job gain in November as distortions caused by two hurricanes and the Boeing strike faded.

The Unemployment Rate (UE) is expected to remain at 4.2% in the same period.

Meanwhile, Average Hourly Earnings (AHE), a closely-watched measure of wage inflation, are expected to rise by 4% year-over-year (YoY) in December, at the same pace as seen in November.

Investors will assess the December jobs data for fresh signs on the health of the US labor market, as they remain wary about the inflation and monetary policy outlook under Trump’s presidency. Incoming Trump’s immigration and trade policies are expected to stoke up inflation, calling for higher interest rates.

The Minutes of the Fed’s December meeting released on Wednesday showed policymakers’ concerns about inflation and the potential impact of Trump’s policies, suggesting that they will move more slowly and cautiously on interest rate cuts because of the uncertainty.

Previewing the December employment situation report, TD Securities analysts said: “We expect payroll growth to cool down closer to trend in December following the October-November gyrations that were triggered by one-off shocks.”

“The UE rate likely stabilized at 4.2% despite our expectation for a meaningful rebound in the household survey's employment series. Separately, we look for wage growth to mean-revert to 0.1% m/m following a string of hot monthly prints,” they added.

How will US December Nonfarm Payrolls affect EUR/USD?

Speculations around Trump's potential tariff plans continued to offset any impact from the recent US economic data releases. However, that failed to alter the market’s pricing of a no-rate change decision at the Fed meeting later this month, according to the CME Group's FedWatch tool.

Earlier in the week, the BLS reported that the JOLTS Job Openings climbed to 8.09 million, outpacing forecasts for a 7.7 million growth and higher than October's 7.83 million print.

The Automatic Data Processing (ADP) announced on Wednesday that employment in the US private sector grew by 122,000 jobs last month, lower than the estimated 140,000 and November’s 146,000 job gain.

The disappointing ADP jobs report ramped up expectations of a weak payrolls data on Friday. However, the US ADP data is generally not correlated with the official NFP data.

If the headline NFP figure shows a payroll growth below 100,000, the US Dollar could witness a massive selling wave in a knee-jerk reaction to the data, as it would create a dilemma for the Fed and could revive dovish Fed expectations. In such a scenario, EUR/USD could stage a solid comeback toward the 1.0450 level.

On the other hand, an upside surprise to the NFP and wage inflation data could double down on the Fed’s hawkish shift, sending the USD back to multi-year highs while knocking off the EUR/USD pair to the lowest level in over two years to below 1.0250.

Dhwani Mehta, Asian Session Lead Analyst at FXStreet, offers a brief technical outlook for EUR/USD:

“EUR/USD remains below all major daily Simple Moving Averages (SMA) in the lead-up to the NFP showdown. Meanwhile, the 14-day Relative Strength Index (RSI) points south below the 50 level. These technical indicators suggest that the pair remains exposed to downside risks in the near term.”

“Buyers needs a decisive break above the 21-day Simple Moving Average (SMA) at 1.0391 to initiate a meaningful recovery toward the January 7 high of 1.0437. The next relevant topside target aligns at the 50-day SMA at 1.0510. Fresh buying opportunities will rise above that level, calling for a test of the December 6 high of 1.0630. Conversely, if EUR/USD yields a sustained break of the two-year low at 1.0224, additional declines will aim for the 1.0150 psychological barrier.”