Thursday, April 2, 2009

IMF: Canada 'solid' and 'resilient'

The 'best prepared' award
Stephanie Flanders, BBC: I know you can't bear the suspense. The award for 'Best Prepared Country Going Into the Crisis' goes to... Canada.

Next time the [UK] prime minister talks about every country being brought down by this crisis -- or the chancellor suggests that everyone made the same mistakes -- remember Canada. Nowhere is immune, but by most key measures, the Canadians are coming out of this crisis in a league of their own.

Take the banking system. Canada's banks have not just had fewer bailouts than other countries. They've had none. Zero. Not a dime...

As the FT pointed out today, of the seven institutions in the world that still retain a triple-A Moody's credit rating, two are Canadian banks. And as their competitors have tumbled, so they have ascended the global rankings: all five Canadian banks now rate in the world top 50.

Didn't they pay a price for that boring banking -- the distinct lack of securitisation and innovation? Well, it's true, Canada didn't have a nationwide house price bubble... And they didn't have the same kind of rise in personal debt. That's one reason the IMF used words like 'resilient' and 'well-placed' in its latest survey of the country's prospects...

Despite the openness of its economy, Canada has not even been part of the global trade imbalances... Net debt last year was an irritating 22% of GDP...

And the most impressive thing of all about Canada's position is that you are probably reading about it for the first time. Canadians are so sensible they even have the sense not to brag, in case things turn out badly for them after all... On top of everything else, the Canadians have guarded against hubris.

Context and outlook
1. Canada entered the global financial turmoil on a solid footing. Through 2007, Canada experienced strong growth, price stability, fiscal and current account surpluses, historically low unemployment, and financial stability. This favorable outturn reflected strong fiscal discipline, sound and credible monetary policy, and robust financial supervision and regulation. It also reflected supportive global growth and booming commodity prices...

5. At the same time, the strains evident in other countries are markedly less serious in Canada. Canada's housing markets have been less overheated than elsewhere and booms have been localized rather than general. Financial conditions have tightened, as reflected in spreads and lending standards; but strains are considerably less severe than in other major countries, and credit growth remains solid, both of which reflect a resilient financial system.

6. Canada has responded proactively to the worsening economic outlook. Fiscal stimulus incorporated in Budget 2009 will ameliorate the downturn, and in tandem with the Bank of Canada's aggressive easing of monetary policy, will mitigate deflation risks. The financial system is stable, and recent steps to expand the toolkit for financial stabilization are appropriate given the uncertain outlook. Looking ahead, the main task for policies is to remain vigilant and stand ready to respond if tail risks materialize.
Image source here.