Canada dominates global resource market: TD

(October 25, 2006) If you are sick of Canada being seen as a nation of lumberjacks and miners, too bad. A new report out of TD Economics says the perception of our home and native land as a resource powerhouse is accurate.

Not only do extraction industries play a huge part in the Canadian economy, but we dominate the global marketplace, thanks the breadth of resources available.

“The resource sector is a vital generator of living standards in Canada and boasts a strength and diversity that is matched by few nations around the world,” says Derek Burleton, an associate vice-president and senior economist with TD Bank Financial Group.

However, the sheer size of the resource sector, and Canada’s role as an exporter to the world, has a downside, in that it can lead to violent currency fluctuations as demand rises and falls.

“There are perhaps a few other nations that might compete with Canada in terms of diversity and size of resource wealth, such as Russia,” says Burleton. “But if you take into account this country’s low political risk and open access to the U.S. market, Canada is second to none.”

The report warns that the sector will cool off eventually, with weaker U.S. economic growth expected in the coming year, which could reduce demand for resources. But the report adds that the long-term outlook has never been brighter, as commodity prices are viewed to be in a secular upswing.

For investors, that should mean attractive returns on the Canadian equity markets over the “medium-to-longer” term, Burleton says. The risks remain, however, as commodity prices are increasingly influenced less by commercial needs, and more by global investors.

“Geographic diversification is an excellent way for investors to manage the risk of short-term gyrations in Canadian equity markets that flow from ups and downs in commodity prices,” says Burleton.

Filed by Steven Lamb, Advisor.ca, steven.lamb@advisor.rogers.com