Canada's GDP Contracts 3.4%

Summary
On March 2nd, Canada announced that its Gross Domestic Product (GDP) had contracted 3.4% in the fourth quarter of 2008. The most significant drop in nearly two decades, Canada’s Gross Domestic Product has been decimated largely due to the global recession. Statistics Canada reported that everything is falling in the Canadian economy: exports, imports, household spending, factory output, investment profits and business profits. While all aspects of the Canadian economy are falling, there is clear evidence that the level of saving rising substantially and consequently, adding the level of spending to the list of declining areas. Bank of Canada governor Mark Carney and Finance Minister Jim Flaherty both strongly agree that Canada is in the midst of a recession. As a result of this economic downturn, the Bank of Canada has cut down its interest rates to 0.5%. The value of the Canadian dollar is falling significantly alongside Canada’s Gross Domestic Product. Despite all of these negative indications of the economy, there are a few positives that citizens can feel good about. While Canada posted a 3.4% contraction in Gross Domestic Product, countries like the United States of America declared a 6.2% decline and Japan plummeted 12.7%. Also, the overall year was positive for Canada’s Gross Domestic Product having increased 0.5% in all of 2008.

Determination of National Income
As vividly detailed in chapter six, Gross Domestic Product, through measuring a country’s goods and services produced and provided in a year, determines the national income of a country. Canada’s contracting Gross Domestic Product is a direct result of the fewer goods and services provided as demonstrated by the figures provided in the article. As we have witnessed throughout the duration of the current economic recession, jobs are much harder to come by now that a smaller workforce is needed to produce the goods and services that are necessary. With less jobs and disposable income available, everyday citizens are keen on holding onto their money and reducing their superfluous spending. Because of the increased level of saving and decreased level of spending, a vicious cycle results in the economy where little money is circulated. On the business side of economy, reduced sales result and layoffs occur frequently in order to save on costs. Even then, businesses are finding it hard-pressed to please shareholders and owners alike. These layoffs directly affect households as many no longer hold jobs and as a result, spend a significant amount less. Households are no longer purchasing as many goods and instead, are protecting their self-interests through saving their money and reducing their spending greatly. With less money moving through the economy, businesses have no choice but to, again, continue cutting jobs. With this, the vicious cycle repeats itself with more jobs being lost and spending brought to a near halt. On this note, the interesting trend of deteriorating revenue looks to continue contributing to the failing economy.

Reflection
Albeit not the worst in the world, Canada’s economy is undeniably in dire condition. While Monetary Policy definitely has its merits, it is unlikely to salvage the Canadian economy on its own. Regardless, lowering the interest rate is a fantastic way to encourage consumer spending. To be able to take out a loan with such a ridiculously low interest rate is indeed very tempting and a great sign of the effort the Bank of Canada is making to encourage spending in our nation. While Monetary Policy works to get people spending and investing in the market, Fiscal Policy is focused on rescuing businesses. Fiscal Policy is essential to our resurgence, not only in saving businesses from going bankrupt, it saves millions of jobs as a result of the businesses staying afloat. On a side note, however, I do not understand the contradictory responses when the notion of deficits is brought up. Everyday citizens and economists alike stress the need for government intervention to boost the economy, yet the word ‘deficit’ seems to send them into some sort of ‘fear-mongering’ state of mind. Considering both policies and the current global recession, I say with certainty that our economy will be able to rebound in the long term (which many people seem to have a problem with as they want everything fast and immediate). Although I do not deny that Canada is in financial strain, I do not believe it would appear as grim without the sensationalism present in media and journalism in this day and age. Sensationalists make great use of exaggeration and choose to portray only the losses, as indicated by highly underplaying the fact that Canada’s Gross Domestic Product grew 0.5% overall in the year 2008. Sometimes I really do wonder what our economy would be like without the sensationalist coverage.

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