Assignment #1 Canadian Securities Course October 19, 2012 -------------------------------------------------
Assignment #1 Canadian Securities Course October 19, 2012 Determining the current state of the business cycle
Determining the current state of the business cycle
The purpose of this research report is to determine the current stage of the business cycle that the Canadian economy is experiencing. There are five stages in a business cycle – expansion, peak, contraction, trough, and recovery. These different cycles are characterized by the state and degree of the economic activities performed by the economic agents, and the condition of the business environment (Canadian Securities Course, 2011, p. 4-13). I believe that the Canadian economy is currently in a slow recovery as indicated by the publically available information provided by Statistics Canada.
The past four years has not been the easiest for the Canadian economy. The Sub-prime Mortgage Crisis, which hit all of the world’s major economies in late 2008, was followed immediately by the European Sovereign Debt Crisis that again hit the global economy. Canada is an integrated part of the world economy and it actively trades with all the other major economies. Therefore, it was inevitably affected by the economy downturn and has suffered from sharp reductions in its exports of natural resources and manufacture goods, which comprise of a large part of its GDP. Having a much better capitalized and regulated financial industry in addition to lower National Debt, Canada was able to manage through the downturn, although suffered a significant reduction in the growth of its economy. As indicated in table 1, the Canadian GDP rebounded to very moderate growth from the slight dip in 2009.
Table 1: Canadian Gross domestic product (Statistics Canada, 2012) Economic indicators are widely used in characterizing the economic conditions and there are three types of indicators. Leading indicators are used to anticipate changes in the business cycle by indicating what businesses and consumers have begun to produce and spend. Coincident indicators provide information about the current state of the economy, and lagging indicators can confirm that a business cycle pattern is occurring (Canadian Securities Course, 2011, p. 4-16). The activities that characterize an economy in recovery include the following: firms increasing production to meet the new demand; companies are still too cautious to hire back significant numbers of workers, nonetheless the period of mass layoffs is over; significant new investments are not yet made; meanwhile, unemployment remains high while inflation stays low (Canadian Securities Course, 2011, p. 4-13). To determine the present state of the Canadian economy, I have gathered data from Statistics Canada, which shows that Canada is most likely experiencing a slow recovery from the recent economy crises. Statistics Canada provides key economic indicators and assessments of the current state of the Canadian economy on a regularly basis. To determine which stage of the business cycle the Canadian economy is in, I have gathered the latest economic data in addition to the previous period information from Statistics Canada. Statistics Canada has historically provided an...