Is Canada going to a recession?
Should we be worried?

       Today, in my economic class, one of my colleagues brought up an article from HuffingtonPost regarding Canada going into a recession, in a close future. This article was posted on 12/30/2014 by Sunny Freeman. The author mentioned many reasons and incidents which are leading Canada into a recession such as: sinking commodity prices, a rise in interest rates and tanking oil prices. In my opinion, there would not be another recession for Canada anytime soon. The reasons mentioned article, can affect Canada's economy, but it will not affect to a point which Canada sinks into a recession.


Sinking Commodity?

       First, it is true that CAD/USD ratio has not been good lately, but it is only the US dollar that is getting stronger everyday. If you look at CAD/EUR ratio, you will see that Canadian dollar is not getting weaker, but it is getting stronger.

The article mentions that the low foreign investments in Canada resulted in the weak Canadian dollar.  Amount of foreign investments could be much higher in Canada, but due to the recent recession, it is not. Let's not forget that In 2007-2008 recession, Canada performed really well boosting its economy back up. Although Canada's foreign investments is low right now, its growth has been higher than many developed countries such as Japan, France or Germany. According to World Bank, Canada led all the G-7 countries in economic growth in the past decade which also includes the 2007-2008 recession period.


A Rise In Interest Rates

       Recently, Bank of Canada lowered the interest rates in order to lower the interest rates in Canadian commercial banks. Lowering the interest rates results in more borrowing and more investments which can lead to economic growth. The article is concerned about this and the reason is that if many Canadians start borrowing with low interest rates, what happens if the interest rates go back up? It is truly something that people should be concerned about before borrowing large amounts of money from banks. You also might ask yourself isn't having low interest rates and encouraging borrowing the reason why the world went into a recession in 2008? well, you are completely right and low interest rates were one of big reasons that led the world into a recession; but in USA, there are numerous number of commercial banks and these banks lent out great amounts of money to people with much less regulations concerning these borrowings. Canadian banking system, is one of the strongest banking systems in the world and there are many regulations regarding borrowing, which protects the borrowers from being unable to repay their debt to banks.Also, due to Canada's banking system, Bank of Canada will not increase the interest rates if they know that it will hurt many people who borrowed with low interest rates. Over all, Canadians who took advantage of low interest rates to buy a house, finance their investments and etc, should not be concerned about interest rates rising again.

Tanking Oil Prices!
The first topic used by two economists to start a conversation

       "Crash of oil prices"; there are not many Canadians, who still has not heard of low oil prices or even sensing it while they are filling up their cars with gasoline. Due to recent decisions of OPEC, the oil prices dropped by around 50%. Those countries which oil is one of their main exports with high cost to extract it from ground, are really hurt by this price.

According to WorldRichestCountries.com, oil is 27% of Canada's total exports and for a country like Canada where cost of getting the oil ready to be exported is high, there is not much profit in it anymore. In my opinion, current oil prices will rise again due to the great pressure on some OPEC countries economy. OPEC is consisted of Iran, Iraq, Algeria, Saudi Arabia, United Arab Emirates and 7 other countries with lower market share. For countries such as Saudi Arabia, extracting the oil from the ground and exporting it only costs around $20 per barrel; now selling it at $50 a barrel is still a good revenue. What about other OPEC giants? Is it same for them? For some OPEC giants like Iran, it costs much more to extract oil from the ground and Iran needs to sell its oil at around $80 a barrel in order to reach its 10 year economic goals. Currently, many OPEC countries like Iran are having many issues due to the current oil price so there is a very great chance of these countries forcing OPEC to cut supplies. If the demand stays the same, due to shift of supply curve to the left, the new equilibrium will have a higher price. Overall, current oil price is just a bubble and soon the oil price will go back to its real value. This will most likely happen in June 2015, on OPEC's next meeting.

       In conclusion, Canada is not likely to approach a recession. Recessions happen when the economy is at a peak and Canada's economy just started to recover from the previous recession and has a long way to reach its peak. I do not believe that it is a good time to be worried about upcoming recession and I believe that the focus on doing all that is possible to grow Canada's economy is the priority.

Thank you very much for your time.