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Popular opinion suggests any slowdown in resource demand from China, which is becoming more desperate in its attempts to revive its flagging economy, will be especially bad for a commodity-dependent economy such as Canada’s.
That may well be the case, but it does overlook at least one key silver lining. Sharply lower commodity prices are now offering Canada an opportunity to push the reset button on an economy that’s become distorted by an overdependence on resource markets.
Whether you’re talking about oil, coal, or copper, it seems as if all roads have led to China for going on 20 years. With the sun now appearing to set on China’s track record of robust economic growth, questions are now being asked about whether the country might follow the example of Japan’s economy, which set the world on fire decades ago before sliding into a protracted period of stagnation that it’s still struggling to shake off.
Whether it’s stimulus spending, rate cuts or a recent devaluation of the yuan, Beijing’s attempts to prod China’s once seemingly unstoppable manufacturing sector back to its former heights continue to fall short. As the country’s leaders are finding out, the transition toward a service economy oriented toward servicing more than a billion consumers is a different beast than what they’ve come to know. It’s a shift that global resource players, which have come to depend on steadily increasing demand from China, are now grappling with as well.
Where does a smaller appetite for commodities leave a country like Canada? In the present moment, the answer is certainly worse off. In the longer run, though, the country could well be in better shape for the changes that will be induced.
A slowdown in China’s economic growth and, by extension, much tamer global commodity demand, presents Canada with both a challenge and an opportunity. The hard part, of course, is preventing a contraction in the oil patch from dragging down the entire economy.
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