Canada Decoupling Theory Debunked Again!

The latest bullish theory circulating the globe is that even if the U.S. economy slips into recession, they aren't that important in the context of the global economy so other countries may be able to ward off recession. Specifically, the theory is that Canada's economic fundamentals are so stong and the demand for resources is so big, that Canada will not suffer economically if the U.S. is in recession. Clearly this is pure fantasy. With 85% of our exports going to the U.S., if they catch a cold, we will catch a cold. Hopefully, it is only a common cold and not pneumonia.

Canada Economy Reels as U.S. Slowdown Cuts Factory Orders, Jobs

The impact of the U.S. housing slump is spreading in western Quebec's sparsely populated Antoine-Labelle county, where 17 plants have closed since residential construction began to plummet two years ago. The region has lost more than 10 percent of its 18,000 jobs, prompting Kanenda's former workers to buy the bankrupt facility and try to reopen it.

"We're now at a really critical juncture." said Yvon Cormier, head of a development agency for the region. "When something goes wrong with the U.S. market, we feel it immediately."

Only three months ago, the Bank of Canada's Senior Deputy Governor Paul Jenkins told a New York audience that growing demand from China and India for commodities meant the U.S. and Canadian economies "respond in different ways to certain shocks." Canada was benefiting from rising prices for its oil, metals, fertilizer and nickel. Some factories were coping with a weakening U.S. dollar by buying new equipment and cutting costs.

In December, Canada lost 33,200 factory jobs, and there's no evidence the losses have stopped. Canfor Corp., the largest producer of Canadian softwood lumber, said Jan. 18 it would shut two more mills, the latest in a series of closures that has erased almost 6,000 industry jobs since October.

Montreal-based AbitibiBowater Inc., North America's largest newsprint producer, on Jan. 31 announced an eight-week layoff of 115 mill workers in western Quebec and 325 elsewhere.

Exports of lumber and sawmill products fell 21 percent in the first 11 months of 2007, dragged down by the U.S. housing slump. In December, U.S. house prices marked the first annual decline since the Great Depression.

Babcock & Wilcox Canada, an Ontario maker of power- generation equipment and subsidiary of Houston, Texas,-based McDermott International Inc., is cutting about 75 workers as orders from its parent slow.