Monday, February 06, 2006

Global Economic Imbalances

In today's Globe and Mail, an article entitled "Dodge warns of global imbalances" discusses comments by Bank of Canada Governor David Dodge where he states: imbalances, such as the record U.S. current account deficit and the ballooning surpluses in some Asian countries, are persisting and if not corrected could result in "periods of outright recession."

...An increase in domestic savings in the U.S. could slow the global economy "sharply" unless there's corresponding growth in demand outside the U.S., he told Caribbean central bankers in Bridgetown, Barbados.

"Such a slowdown in growth, in turn, raises the risk that policy-makers might resort to protectionism," he said. "In that event, a period of very slow growth could, perhaps, be punctuated by periods of outright recession."

...a sudden disruption in the economy will be especially hard on those countries with very open economies, Mr. Dodge said — including Canada.

I wonder what Stephen Harper's government will bring to Canada vis-à-vis North American protectionism versus openness? What Canada needs, as I've stated in previous posts here and here, is stronger relationships with the EU and emerging economies like China and India while maintaining a strong relationship with the US. This may not be in the best interests of the States, especially given President Bush's comments on the need to minimize dependency on foreign energy sources (I bet he's not thinking of Canada as foreign). Given the extent of our cross-border trade and America's interest in keeping its negotiating power through the preservation of 'trade-share', it will require true statesmanship to win acceptance from our neighbor.

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