Interesting economic facts of the past year

Sagging commodity prices a drag on Canadian dollar

 

Canada grew faster than Brazil in the past year. Despite a series of challenges both in Canada and globally, the Canadian economy likely grew 2.3 per cent, close to expectations and not far from its long-run average. Over the latest four quarters, GDP is up 2.4 per cent year-over-year, outpacing not just most major industrialized economies (the U.S. was up 1.5 per cent and the Eurozone 1.4 per cent), but even the 2.1 per cent advance in emerging market darling Brazil over the same period.

The Canadian dollar was the weakest currency in the G10 in the past year. Global investors were not so impressed with the Canadian dollar in 2011, driving the currency down more than two per cent on the year. So, not only did the loonie weaken against the U.S. dollar and the disaster-hit Japanese yen (which was in fact the strongest major currency this year), but even against the beleaguered euro.

The U.S. government faced its lowest borrowing costs since the early 1950s. Despite political difficulties throughout the year, the first credit rating downgrade of U.S. government debt in history, the intense focus on deficits and debt, and three per cent-plus inflation, 10-year Treasury yields averaged less than 2.8 per cent in 2011 and ended the year close to all-time lows around two per cent.

Gold was the top-performing commodity in 2011, but also a drag on the TSX. Despite record gold, silver and copper prices at various stages this year, and the early-year sprint in oil above $100, commodity prices sagged overall in 2011. For instance, the Commodity Research Bureau Index fell more than eight per cent, with natural gas, nickel and lumber all down more than 20 per cent (all are important commodities for Canada). Accordingly, the materials sector was the second weakest in the TSX this year (“topped” only by tech), with even gold stocks down more than 15 per cent.

 

Canadian inflation rose at the fastest pace in 20 years in 2011. With one month to go, it looks like the consumer price index will rise by almost three per cent this year, the fastest annual increase since 1991 (the year of the GST and the year the Bank of Canada began targeting inflation). This year’s increase was pumped up by sales tax increases, but even ex-tax inflation was nearly 2.5 per cent, despite a soggy economy and a lingering output gap.

 

By Doug Porter, BMO Financial Group