

Currently released so far... 12900 / 251,287
Browse latest releases
2010/12/01
2010/12/02
2010/12/03
2010/12/04
2010/12/05
2010/12/06
2010/12/07
2010/12/08
2010/12/09
2010/12/10
2010/12/11
2010/12/12
2010/12/13
2010/12/14
2010/12/15
2010/12/16
2010/12/17
2010/12/18
2010/12/19
2010/12/20
2010/12/21
2010/12/22
2010/12/23
2010/12/24
2010/12/25
2010/12/26
2010/12/27
2010/12/28
2010/12/29
2010/12/30
2011/01/01
2011/01/02
2011/01/04
2011/01/05
2011/01/07
2011/01/09
2011/01/10
2011/01/11
2011/01/12
2011/01/13
2011/01/14
2011/01/15
2011/01/16
2011/01/17
2011/01/18
2011/01/19
2011/01/20
2011/01/21
2011/01/22
2011/01/23
2011/01/24
2011/01/25
2011/01/26
2011/01/27
2011/01/28
2011/01/29
2011/01/30
2011/01/31
2011/02/01
2011/02/02
2011/02/03
2011/02/04
2011/02/05
2011/02/06
2011/02/07
2011/02/08
2011/02/09
2011/02/10
2011/02/11
2011/02/12
2011/02/13
2011/02/14
2011/02/15
2011/02/16
2011/02/17
2011/02/18
2011/02/19
2011/02/20
2011/02/21
2011/02/22
2011/02/23
2011/02/24
2011/02/25
2011/02/26
2011/02/27
2011/02/28
2011/03/01
2011/03/02
2011/03/03
2011/03/04
2011/03/05
2011/03/06
2011/03/07
2011/03/08
2011/03/09
2011/03/10
2011/03/11
2011/03/13
2011/03/14
2011/03/15
2011/03/16
2011/03/17
2011/03/18
2011/03/19
2011/03/20
2011/03/21
2011/03/22
2011/03/23
2011/03/24
2011/03/25
2011/03/26
2011/03/27
2011/03/28
2011/03/29
2011/03/30
2011/03/31
2011/04/01
2011/04/02
2011/04/03
2011/04/04
2011/04/05
2011/04/06
2011/04/07
2011/04/08
2011/04/09
2011/04/10
2011/04/11
2011/04/12
2011/04/13
2011/04/14
2011/04/15
2011/04/16
2011/04/17
2011/04/18
2011/04/19
2011/04/20
2011/04/21
2011/04/22
2011/04/23
2011/04/24
2011/04/25
2011/04/26
2011/04/27
2011/04/28
2011/04/29
2011/04/30
2011/05/01
2011/05/02
2011/05/03
2011/05/04
2011/05/05
2011/05/06
2011/05/07
2011/05/08
2011/05/09
2011/05/10
2011/05/11
2011/05/12
2011/05/13
2011/05/14
2011/05/15
2011/05/16
2011/05/17
2011/05/18
2011/05/19
2011/05/20
2011/05/21
2011/05/22
2011/05/23
2011/05/24
Browse by creation date
Browse by origin
Embassy Athens
Embassy Asuncion
Embassy Astana
Embassy Asmara
Embassy Ashgabat
Embassy Apia
Embassy Ankara
Embassy Amman
Embassy Algiers
Embassy Addis Ababa
Embassy Accra
Embassy Abuja
Embassy Abu Dhabi
Embassy Abidjan
Consulate Auckland
Consulate Amsterdam
Consulate Adana
American Institute Taiwan, Taipei
Embassy Bujumbura
Embassy Buenos Aires
Embassy Budapest
Embassy Bucharest
Embassy Brussels
Embassy Bridgetown
Embassy Bratislava
Embassy Brasilia
Embassy Bogota
Embassy Bishkek
Embassy Bern
Embassy Berlin
Embassy Belmopan
Embassy Belgrade
Embassy Beirut
Embassy Beijing
Embassy Banjul
Embassy Bangkok
Embassy Bandar Seri Begawan
Embassy Bamako
Embassy Baku
Embassy Baghdad
Consulate Barcelona
Embassy Copenhagen
Embassy Conakry
Embassy Colombo
Embassy Chisinau
Embassy Caracas
Embassy Canberra
Embassy Cairo
Consulate Curacao
Consulate Ciudad Juarez
Consulate Chennai
Consulate Casablanca
Consulate Cape Town
Consulate Calgary
Embassy Dushanbe
Embassy Dublin
Embassy Doha
Embassy Djibouti
Embassy Dili
Embassy Dhaka
Embassy Dar Es Salaam
Embassy Damascus
Embassy Dakar
Consulate Dubai
Embassy Helsinki
Embassy Harare
Embassy Hanoi
Consulate Ho Chi Minh City
Consulate Hermosillo
Consulate Hamilton
Consulate Hamburg
Consulate Halifax
Embassy Kyiv
Embassy Kuwait
Embassy Kuala Lumpur
Embassy Kinshasa
Embassy Kingston
Embassy Kigali
Embassy Khartoum
Embassy Kathmandu
Embassy Kampala
Embassy Kabul
Consulate Kolkata
Consulate Karachi
Embassy Luxembourg
Embassy Luanda
Embassy London
Embassy Ljubljana
Embassy Lisbon
Embassy Lima
Embassy Lilongwe
Embassy La Paz
Consulate Lahore
Consulate Lagos
Mission USOSCE
Mission USNATO
Mission UNESCO
Embassy Muscat
Embassy Moscow
Embassy Montevideo
Embassy Monrovia
Embassy Minsk
Embassy Mexico
Embassy Mbabane
Embassy Maputo
Embassy Manila
Embassy Manama
Embassy Managua
Embassy Malabo
Embassy Madrid
Consulate Munich
Consulate Mumbai
Consulate Montreal
Consulate Monterrey
Consulate Milan
Consulate Melbourne
Embassy Nicosia
Embassy Niamey
Embassy New Delhi
Embassy Ndjamena
Embassy Nassau
Embassy Nairobi
Consulate Naples
Consulate Naha
Embassy Pristina
Embassy Pretoria
Embassy Prague
Embassy Port Of Spain
Embassy Port Louis
Embassy Port Au Prince
Embassy Phnom Penh
Embassy Paris
Embassy Paramaribo
Embassy Panama
Consulate Peshawar
REO Basrah
Embassy Rome
Embassy Riyadh
Embassy Riga
Embassy Reykjavik
Embassy Rangoon
Embassy Rabat
Consulate Rio De Janeiro
Consulate Recife
Secretary of State
Embassy Suva
Embassy Stockholm
Embassy Sofia
Embassy Skopje
Embassy Singapore
Embassy Seoul
Embassy Sarajevo
Embassy Santo Domingo
Embassy Santiago
Embassy Sanaa
Embassy San Salvador
Embassy San Jose
Consulate Strasbourg
Consulate St Petersburg
Consulate Shenyang
Consulate Shanghai
Consulate Sapporo
Consulate Sao Paulo
Embassy Tunis
Embassy Tripoli
Embassy Tokyo
Embassy The Hague
Embassy Tel Aviv
Embassy Tehran
Embassy Tegucigalpa
Embassy Tbilisi
Embassy Tashkent
Embassy Tallinn
Consulate Toronto
Consulate Tijuana
USUN New York
USEU Brussels
US Office Almaty
US Mission Geneva
US Interests Section Havana
US Delegation, Secretary
UNVIE
Embassy Ulaanbaatar
Embassy Vilnius
Embassy Vienna
Embassy Vatican
Embassy Valletta
Consulate Vladivostok
Consulate Vancouver
Browse by tag
AE
ASEC
AS
AR
AMGT
AFIN
AORC
AU
AG
AF
APER
ABLD
ADCO
ABUD
AM
AID
AJ
AEMR
AMED
AL
ASUP
AN
AIT
ACOA
ANET
ASIG
AA
AGMT
AINF
AFFAIRS
ADANA
AY
AADP
ARF
ACS
AGR
AMCHAMS
AECL
AUC
APEC
APECO
AFGHANISTAN
ACAO
ASEAN
ADM
AGAO
AND
ADPM
ATRN
ALOW
AROC
APCS
AORG
AO
AODE
ACABQ
AX
AMEX
AZ
ARM
AQ
ATFN
AMBASSADOR
ACBAQ
AFSI
AFSN
AC
ASEX
AER
AVERY
AGRICULTURE
ASCH
AFU
AMG
ATPDEA
ASECKFRDCVISKIRFPHUMSMIGEG
AORL
BR
BO
BA
BM
BL
BH
BK
BEXP
BILAT
BTIO
BF
BU
BD
BY
BE
BG
BB
BBSR
BT
BRUSSELS
BP
BX
BC
BIDEN
BMGT
BWC
BN
BTIU
CA
CS
CO
CD
CR
CPAS
CDG
CI
CDC
CBW
CU
CVIS
CE
CONS
CH
CMGT
CASC
CY
CW
CG
CJAN
CIDA
CODEL
CWC
CIA
CBSA
CEUDA
CFED
CLINTON
CAC
CL
CACS
CIC
CHR
CAPC
CM
CT
CTR
COM
CROS
CN
COPUOS
CV
CF
CARSON
CONDOLEEZZA
CICTE
CYPRUS
COUNTER
COUNTRY
CBE
CKGR
CVR
COUNTERTERRORISM
CITEL
CLEARANCE
COE
CARICOM
CB
CSW
CITT
CACM
CDB
CJUS
CTM
CAN
CLMT
CBC
CNARC
CIS
EFIN
ECON
ETRD
EAID
EC
EU
EUN
EINV
EG
ETTC
EIND
ELAB
EAGR
ECIN
EINT
ENRG
EFIS
ELTN
EAIR
EPET
EZ
ET
ENERG
ECPS
EWWT
EI
ETRN
EINVECONSENVCSJA
EEPET
EUNCH
ER
ES
EN
EMIN
ESENV
ENNP
ENGR
ETRDEINVECINPGOVCS
ENVI
ECINECONCS
ELN
EFTA
ELECTIONS
ENVR
EXTERNAL
ENIV
ESA
EPA
ETRO
ETRDECONWTOCS
EUR
ECUN
EXIM
EK
EUREM
ECONOMY
EUMEM
ERNG
EFINECONCS
EAIDS
ECA
ETRC
EINVEFIN
ETC
EAP
EINN
ECONOMIC
EXBS
ENGY
ECONOMICS
EIAR
EINDETRD
ECONEFIN
EURN
EDU
ETRDEINVTINTCS
ECIP
EFIM
EREL
EINVETC
ECONCS
ETRA
EAIG
EUC
ERD
IQ
IR
IS
IN
IA
IC
IZ
ICRC
ID
IDA
IT
IO
IAEA
ICJ
ICAO
IV
IBRD
IMF
IAHRC
IWC
ILO
ISLAMISTS
IGAD
ILC
ITU
ITF
INRA
INRO
ICTY
INRB
ITALY
IBET
IL
INTELSAT
ISRAELI
IMO
IDP
ICTR
ITRA
IRC
IRAQI
IEFIN
IPR
IIP
INMARSAT
ITPGOV
ITALIAN
INTERNAL
IRS
INTERPOL
IEA
INR
ISRAEL
IZPREL
IRAJ
IF
ITPHUM
IACI
INDO
KPAO
KMDR
KCOR
KNNP
KJUS
KCRM
KDEM
KVPR
KTFN
KPRP
KTIP
KSCA
KSUM
KTEX
KIDE
KIRF
KV
KTIA
KN
KG
KFRD
KWMN
KUNR
KISL
KU
KGHG
KPKO
KOMS
KPAL
KIPR
KMCA
KOMC
KRVC
KSEP
KAWC
KOLY
KWBG
KACT
KFLO
KHIV
KZ
KGIC
KBCT
KDRG
KBTR
KCFE
KE
KHLS
KMPI
KAWK
KPWR
KIRC
KRAD
KFRDCVISCMGTCASCKOCIASECPHUMSMIGEG
KFLU
KPLS
KRIM
KSTH
KDDG
KPRV
KICC
KS
KSAF
KBIO
KREC
KCGC
KCIP
KTDB
KWAC
KPAI
KFRDKIRFCVISCMGTKOCIASECPHUMSMIGEG
KFSC
KSTC
KMFO
KID
KNAR
KMIG
KVRP
KNEI
KGIT
KNSD
KHDP
KSAC
KWMM
KR
KCOM
KAID
KENV
KVIR
KHSA
KO
KCRS
KPOA
KTER
KFIN
KSPR
KTBT
KX
KCMR
KMOC
KCRCM
KBTS
KSEO
KOCI
KNUP
KPAONZ
KNUC
KNNPMNUC
KERG
KSCI
KTLA
KCSY
KTRD
KMRS
KNPP
KJUST
KRCM
KCFC
KCHG
KREL
KFTFN
KLIG
KDEMAF
KGCC
KICA
KHUM
KSEC
KPIN
KESS
KDEV
KPIR
KWWMN
KOM
KWNM
KRFD
KRGY
KIFR
KWMNCS
KPAK
MARR
MOPS
MUCN
MCAP
MNUC
MEPP
MTCRE
MASS
MO
MIL
MX
MAS
MEDIA
MAR
MI
MQADHAFI
MPOS
MTCR
MK
MG
MA
MY
MU
ML
MPS
MW
MD
MARAD
MC
MR
MT
MTRE
MASC
MRCRE
MAPP
MZ
MP
MOPPS
MTS
MLS
MILI
MEPN
MEPI
MEETINGS
MERCOSUR
MCC
MIK
MAPS
MV
MILITARY
MDC
MASSMNUC
NI
NZ
NL
NO
NPT
NATO
NS
NU
NP
NPA
NSFO
NDP
NT
NW
NASA
NSG
NE
NORAD
NAFTA
NG
NATIONAL
NSSP
NV
NSF
NK
NA
NEW
NPG
NR
NGO
NIPP
NZUS
NH
NC
NRR
NAR
NATOPREL
NSC
OIIP
OPRC
OTRA
OEXC
OREP
OSCE
OVIP
OPAD
OBSP
OECD
OFFICIALS
OAS
OPDC
ODIP
OPCW
OES
OFDP
OPIC
OCS
OIC
OHUM
OSCI
OVP
ODC
OIE
OTR
OMIG
OSAC
OFDA
ON
OCII
PREL
PINR
PGOV
PARM
PE
PTER
PHUM
PO
PINS
PREF
PK
PM
POL
PBTS
PNAT
PHSA
PAS
PA
PL
PGIV
PHUMPREL
POGOV
PAK
PEL
PROP
PP
PINL
PBT
PTBS
PG
PINF
PRL
PALESTINIAN
PSEPC
POSTS
PAHO
PHUMPGOV
PGOC
PNR
PREFA
PMIL
POLITICS
POLICY
PROV
PBIO
PREO
PAO
PDOV
PGOF
POV
PCI
PRAM
PSI
POLITICAL
PAIGH
PJUS
PARMS
PROG
PTERE
PRGOV
PORG
PS
PKFK
PSOE
PEPR
PPA
PINT
PMAR
PRELP
PNG
PFOR
PUNE
PGOVLO
PHUMBA
POLINT
PGOVE
PHALANAGE
PARTY
PDEM
PECON
PY
PLN
PHUH
PF
PHUS
PU
PARTIES
PCUL
PGGV
PSA
PGOVSMIGKCRMKWMNPHUMCVISKFRDCA
RU
RS
REGION
REACTION
REPORT
RO
RW
RCMP
RSO
RP
RM
ROOD
RFE
RICE
ROBERT
RSP
RF
RELATIONS
RIGHTS
RIGHTSPOLMIL
RUPREL
SENV
SY
SNAR
SCUL
SP
SF
SW
SOCI
SU
SMIG
SO
SA
SR
SZ
SI
SC
SEVN
SN
STEINBERG
SK
SH
SNARCS
SPCE
SARS
SNARN
SG
SL
SYRIA
SIPRS
SAARC
SNARIZ
SWE
SYR
SEN
SCRS
SAN
ST
SIPDIS
SSA
SPCVIS
SOFA
SENVKGHG
SANC
SHI
SHUM
TU
TSPA
TBIO
TS
TRGY
TINT
TPHY
TN
TW
TH
TZ
TSPL
TP
TBID
TI
TF
TD
TT
TNGD
TL
TC
THPY
TIP
TX
TV
TK
TERRORISM
TO
TRSY
TURKEY
TFIN
TAGS
TR
UK
UNSC
UNGA
UNESCO
UNHRC
UP
UN
USTR
US
UNDC
UY
UNICEF
UNDP
UNMIK
UNAUS
UNCHC
UNCSD
USOAS
UNFCYP
UG
UNIDROIT
UNO
UV
UNHCR
UNEP
USEU
UZ
UNCND
USUN
UNCHR
USNC
USPS
USAID
UE
UNVIE
UAE
UNODC
UNCHS
UNFICYP
UNDESCO
UNC
UNPUOS
Browse by classification
Community resources
courage is contagious
Viewing cable 08OTTAWA1372, PSYCHOLOGY, REALITY AND INTEGRATION: CANADA'S
If you are new to these pages, please read an introduction on the structure of a cable as well as how to discuss them with others. See also the FAQs
Understanding cables
Every cable message consists of three parts:
- The top box shows each cables unique reference number, when and by whom it originally was sent, and what its initial classification was.
- The middle box contains the header information that is associated with the cable. It includes information about the receiver(s) as well as a general subject.
- The bottom box presents the body of the cable. The opening can contain a more specific subject, references to other cables (browse by origin to find them) or additional comment. This is followed by the main contents of the cable: a summary, a collection of specific topics and a comment section.
Discussing cables
If you find meaningful or important information in a cable, please link directly to its unique reference number. Linking to a specific paragraph in the body of a cable is also possible by copying the appropriate link (to be found at theparagraph symbol). Please mark messages for social networking services like Twitter with the hash tags #cablegate and a hash containing the reference ID e.g. #08OTTAWA1372.
Reference ID | Created | Released | Classification | Origin |
---|---|---|---|---|
08OTTAWA1372 | 2008-10-28 14:15 | 2011-04-28 00:00 | UNCLASSIFIED//FOR OFFICIAL USE ONLY | Embassy Ottawa |
VZCZCXRO6692
RR RUEHGA RUEHHA RUEHMT RUEHQU RUEHVC
DE RUEHOT #1372/01 3021415
ZNR UUUUU ZZH
R 281415Z OCT 08
FM AMEMBASSY OTTAWA
TO RUEHC/SECSTATE WASHDC 8642
INFO RUCNCAN/ALL CANADIAN POSTS COLLECTIVE
RUEHRL/AMEMBASSY BERLIN 1123
RUEHLO/AMEMBASSY LONDON 0968
RUEHFR/AMEMBASSY PARIS 1031
RUEHRO/AMEMBASSY ROME 1376
RUEHKO/AMEMBASSY TOKYO 3374
RUEATRS/DEPT OF TREASURY WASH DC
RHEHNSC/WHITE HOUSE NSC WASHINGTON DC
RUEHBS/USEU BRUSSELS 0647
UNCLAS SECTION 01 OF 04 OTTAWA 001372
SENSITIVE
SIPDIS
STATE FOR WHA, WHA/CAN, E, EEB, EEB/IFD
TREASURY FOR ERIN NEPHEW
E.O. 12958: N/A
TAGS: CA ECON EFIN ENRG EPET ETRD
SUBJECT: PSYCHOLOGY, REALITY AND INTEGRATION: CANADA'S
ECONOMIC HEALTH WILL NOT PROTECT IT FROM THE GLOBAL DOWNTURN
REF: A. TORONTO 322
¶B. TORONTO 327
¶C. OTTAWA 1362
SENSITIVE BUT UNCLASSIFIED -- PLEASE PROTECT ACCORDINGLY. NOT
FOR INTERNET DISTRIBUTION.
¶1. (SBU) Summary: How Canada fares in the global economic
crisis will be measured as much by its integration with the
U.S. economy as by Canada's own domestic economic policies.
The bottom line is: Canada's solid economic policy
management will only serve to mitigate the impact of the
global financial crisis and the United States, economic
difficulties. Canada,s deep economic integration with the
United States will cause Canada to suffer as much or
potentially more than many of our other large trading
partners, if the U.S. economy enters a prolonged recession.
Of course it could conceivably be hurt less if the United
States in turn suffers less economic hardship than other
countries or pulls out of its economic downturn. End summary.
¶2. (SBU) Canada's macroeconomic indicators are largely
healthy (the global financial crisis aside) and this
country's history of cautious, highly-regulated financial
operations, now looks "prescient" rather than "outmoded."
Canada,s October year-on-year inflation rate is 2.2 percent;
its 6.1 percent unemployment rate is at historically low
levels (with every province suffering from skilled labor
shortages); and the federal government has enjoyed a budget
surplus each year since 1998. The relative drop in the
Canadian dollar (down 25 percent against the USD since the
beginning of the year) should boost Canada's manufactured
exports, though revenues from priced-in-USD energy have
dropped significantly and Canada,s balanced budget also
provides a macroeconomic cushion. Nevertheless, Canada's
deep integration with the United States leaves Canada
vulnerable to our economic and financial downturn. These
facts are not the only negatives spilling across this long
border; the drop in confidence among Americans is leading a
gloomy cold front that is seriously dampening consumer
confidence and thus markets in Canada. One example: the
drop in the Toronto Stock Exchange aggregate since January 2
and again since September 15, which parallels the fall in the
Dow Jones over the same period. The bottom line is: Canada's
solid economic policy management will at best only serve to
mitigate the impact of the financial crisis, and its
proximity to and interrelationships with the U.S. will cause
it to suffer as much or potentially more than many of our
large trading partners.
¶3. (SBU) In recent days, we have been talking with a number
of well-placed economic actors ranging from the Deputy
Minster of Finance to Canada's G-8 sous-sherpa to the chief
economist of the Royal Bank of Canada (RBC), and their
staffs, for a picture of what the Canadian economy is facing.
We've been helped by excellent formal and informal reporting
from our Consulates. What follows is a summary of the
consolidated picture of the Canadian macroeconomic situation
and its vulnerabilities.
Canadian banking system healthy but still worried -- housing
market cooling
============================================= ===============
¶4. (SBU) Canada's banks and investment brokerages have been
Q4. (SBU) Canada's banks and investment brokerages have been
operating for years in a much more conservative regulatory
environment than their U.S. counterparts. Among a host of
different reserve and capital base requirements, Canada never
separated investment banks from retail banking operations in
Canada and thus all brokerages are part of the financial
empires controlled by Canada's five major retail banks. This
means that even investment/brokerage operations must meet the
regulatory requirements pertaining to retail banking
operations. The aggregate leverage of Canadian banks is
markedly smaller than the levels now extant in the United
States and there is only a small sub-prime mortgage
component. Additionally, the collapse of the asset-backed
commercial paper market last year forced Canadian banks to
recognize and deal with certain problematic asset categories.
OTTAWA 00001372 002 OF 004
The World Economic Forum recently ranked Canada's banking
sector as the world's healthiest. Yet this will only
insulate Canada up to a point. Given the interrelationship
of financial markets across the border, the tightness of
credit flows in the United States is having a measurable
impact on Canadian lending, especially within the tighter
capital adequacy ratio requirements that Canadian
institutions must meet. In terms of housing market lending,
Canada is not facing a homegrown mortgage crisis -- the
consumer housing market remains relatively strong compared to
the United States, but consumer confidence is causing a dip
in purchases and housing starts. There are local housing
bubbles (in Vancouver, parts of Ottawa, and Montreal), but
very little of this effect is related to sub-prime mortgages,
rather to rapidly escalating property values. In addition,
the mortgages at risk are a very small percentage of the
loans held by the big five national banks. As the RBC chief
economist noted, "we are facing a cooling rather than a
collapse of our housing sector."
Canadians will maintain their balanced-budget religion; see
their credit actions as "maintaining a level playing field"
============================================= ===============
¶5. (SBU) It has been a shibboleth of Canadian pol-econ policy
since the mid-1990s (when Canadian Federal deficits
ballooned) that Canada must maintain balanced Federal
budgets. This is a political red-line that will only be
crossed in extremis, and no one here thinks that type of
crisis is near. In Keynesian terms, this limits the ability
of Ottawa to prime the pump during economic downturns. Some
economists have explained to us, however, that they have
enough positive headroom within their budget and off-budget
accounts to try and jumpstart and/or mitigate any approaching
downturn in the economy by increasing spending without
actually going into deficit. At the same time, the Federal
and some Provincial governments are taking measures to ease
the credit crunch here. Finance Minister Flaherty announced
on October 23 a range of actions, including purchases of up
to C$25 billion of insured mortgages and expanding insurance
coverage by the Canadian Lenders Assurance Facility. In
addition, the British Columbia provincial government on
October 24 outlined a 10-point program of tax cuts, budget
cuts and capital outlays to help insulate the province, and
the BC Premier is recalling the provincial Parliament to vote
on this legislation. In Ontario, Canada,s manufacturing
heartland and economic center of gravity, a province that has
been hit hard by the high Canadian dollar over the past year
and declining consumer demand in the U.S., the Premier
recently announced a deficit provincial budget (see ref B),
the first since 2005.
Volatility and regional differences in growth complicate
Federal economic and energy policy
============================================= ===============
¶6. (SBU) As a corporate chief economist told us this week,
"it is the volatility of both exchange rates and energy
prices that is killing us, not the actual levels of either."
Several of our contacts have opined that an exchange rate of
QSeveral of our contacts have opined that an exchange rate of
US 80-85 cents to C$ 1 is probably the long-term
purchasing-power parity level and the level that balances
Canada's export engine with its import needs. Yet the
movements from US 95 cents to US 80 cents to the C$ during
the last two months (and from US 1.10 a year ago) are making
decisions, predictions, and hedging very difficult. The rise
of the US$ is also introducing a sardonic factor -- a senior
bank economist told EMIN that "you guys have the best of both
worlds; you can tank the world economy and then increase your
currency's strength as it serves as a store of value when
problems become global."
¶7. (SBU) Another area of uncertainty for policymakers is the
large differences in economic performance across the
provinces. Many of the western provinces (BC, Alberta and
Saskatchewan) with a largely resource extraction economic
base call themselves the "have" provinces with high
employment rates and healthy bottom lines, while Ontario,
Quebec and Atlantic Canada are suffering from the demise of
OTTAWA 00001372 003 OF 004
the manufacturing sector. In fact, the huge demand for labor
in the energy bubbles of Alberta and Saskatchewan have eased
unemployment in Canada,s eastern provinces.
¶8. (SBU) Canada faces a complicated nexus between exchange
rates, trade, and energy prices at the best of times. A
major contributor to the value of the Canadian dollar is the
price of oil, as Canada is a major oil exporter, supplying
the United States with 17 percent of our oil needs. In
particular, the capital and labor-intensive oil sands sector
in Alberta is watching oil prices and exchange rates closely;
there is a fair amount of disagreement here about the
"break-even level" below which continued extraction would be
unprofitable. Yet trade for Canada is a major national
engine of growth and the lower exchange rate will have a
positive effect (as long as domestic and U.S. demand keep up)
on manufacturers, who have taken a hammering over the last
five years due in part to the rising C$.
¶9. (SBU) We defer to CG Calgary, but pass on that the
emerging consensus position in Ottawa is that technology
developments and growing productivity levels are lowering the
oil market break-even point to somewhere in the US$ 50 per
barrel range. Yet while Ottawa policy makers may be talking
about the break-even point for oil sands production, that
figure is actually less relevant, since producers must only
cover their variable costs to make continued production
worthwhile. A number of factors suggest they will continue
to do so. The general slowdown in the U.S. and Canadian
economies may work to lower some costs, especially labor, and
the flip in exchange rates may support continued production
and export. In-country costs are in C$, while export
revenues are in US$, making it that much cheaper to meet
those costs. While Canada does import energy from the United
States, imports are much smaller than exports. On the whole,
Canada,s energy sector is probably benefiting from the
reversal of exchange rates.
¶10. (SBU) The situation with capital investment is different,
however. Imported material costs are higher in C$ terms, and
financing decisions may be different (balance sheet vs.
credit). Even though oil companies are normally very
conservative on price forecasts made in support of investment
decisions, we are seeing companies slow down major projects,
which also eases pressure on material and labor markets.
Consumer and corporate psychology a key factor
============================================= =
¶11. (SBU) One of the main factors that will determine how
Canada rides out the United States, perfect economic and
financial storm is psychological. The interrelationship
between our two real economies is so massive as to tie Canada
largely to developments in the United States no matter what
their policy choices; but industrial and consumer gloom could
lead to a self-fulfilling prophecy in both countries. There
has been over the last decade "less excess" in consumer
spending and indebtedness in Canada than in the United
States, and thus less vulnerability. But Canadians have long
experience with having the U.S. economic dog wagging their
Qexperience with having the U.S. economic dog wagging their
northern tail, and they are already slowing down their
purchasing and borrowing levels in a manner which will, like
a vicious circle, contribute to their own national slowdown.
Businesses will focus on cutting costs and jobs in
preparation for what they fear will be a deflationary spiral.
Credit is not as tight here as in the States, and the
housing markets are healthier, but the exposure of Canadian
citizens, firms, and banks to the U.S. markets writ large
(and not to mention to American media and to our overall
economic zeitgeist) will have a major impact both on reality
and in psychological terms.
¶12. (SBU) For those reasons, it is perhaps not a surprise
that the Canadian Government is very supportive of the
Administration's coordination over recent weeks with the G-7
and now with the G-20 on a global approach to the global
crisis. Senior Canadians are participating actively in these
discussions and have praised the speed and "multilateral
nature" of the USG response so far.
OTTAWA 00001372 004 OF 004
Visit Canada,s Economy and Environment Forum at
http://www.intelink.gov/communities/state/can ada
BREESE