Canada Illustrates Plight of Rich but Resource-Dependent Countries – by Kim MacKrael, Rhiannon Hoyle and Kjetil Malkenes Hovland (Wall Street Journal – September 1, 2015)

http://www.wsj.com/

Tepid economy, like those of Australia, New Zealand and Norway, shows perils of commodity swing

Ottawa, Sydney and Oslo – For a small group of the world’s most resource-dependent rich countries, the stalling economy of one of its members,Canada, is a stark reminder of how China’s slowing growth stands to shape the coming years.

The energy- and mineral-rich country’s economy contracted for a second consecutive quarter between April and June, as low prices for base metals and crude oil erode business investment and exports. Gross domestic product fell 0.5% on an annualized basis in the second quarter, Statistics Canada said Tuesday, and the first-quarter decline in GDP was revised to a 0.8% drop from an earlier estimate of a 0.6% contraction.

Output expanded in June, making the quarterly decline less sharp than many economists forecast, and the Bank of Canada has said it expects statistics to improve during the second half of 2015. But it has already lowered its growth forecast for the year to 1.1%, down from a previous forecast of 1.9%.

As the economies of the U.S. and many other wealthy countries begin to pick up speed, Canada’s woes so far this year are a harbinger of what could come for a small clutch of advanced economies that rely heavily on commodity exports—and demand from China—for their economic growth.

In Australia, a 40% drop in iron-ore prices over the past year has dragged down quarter-on-quarter growth in the gross domestic product, hitting 0.9% in the first quarter of 2015. Norway’s oil-dependent economy grew just 0.2% in the second quarter from the first as oil investment dropped, and lower prices for dairy, New Zealand’s top export, have contributed to reduced expectations for the country’s growth this year.

Canada is heavily dependent on energy and mining, with crude oil ranking as its top export and commodities in total making up about 17% of its economy, according to the country’s central bank.

Among the 34 developed countries in the Organization for Economic Cooperation and Development, Canada, Australia and Norway and New Zealand are distinctive “because they have become more dependent on commodities for their exports, particularly since the turn of the century,” when commodity prices were rising, said Tony Makin, a visiting professor at the Lee Kuan Yew School of Public Policy at National University of in Singapore.

While many emerging markets rely heavily on the resource sector, most advanced economies have a greater emphasis on manufacturing and services.

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