Major News This Week
The National Bank of Canada | Apr 22, 2013 07:30AM ET
Last Wednesday, the Bank of Canada revised its growth projection for 2013, from 2% to 1.5%. The main reason it gave for this large change was reductions in government spending. The Bank is also projecting modest growth in the global economy in 2013, followed by faster growth for the next two years. The Canadian inflation rate for March, released on Friday, was just below the forecast: 0.2% instead of 0.3%. The news coming out of the U.S. last week was mixed. Housing Starts surprised the markets on Tuesday: 1,036,000 housing starts were recorded in March, or 106,000 more than forecast. Also on Tuesday, the inflation figure proved to be a disappointment, falling 0.2% in March, or 0.9% lower than the previous month. On Monday morning economists were disappointed to learn that China’s GDP had grown at an annualized rate of less than 8% in Q1 2013: the figure was a weak 7.7%.
Exports play a major role in wealth creation. We are delighted when Canadian exports increase. However, there is now a debate over how exports are measured: under the current system, a component that crosses several borders before being installed in a finished product may be counted several times. For example, according to a study published in 2010, an iPod4 sold in the U.S. for $187.51 had $23.88 worth of U.S. content and only $20.75 worth of Chinese content. Nevertheless, the sale of this iPod4 adds $164.63 ($187.51-$22.88) to the U.S. trade deficit with China.
The OECD and the WTO suggest that it would be better to subtract value that is added abroad from the export data. In the case of the sale of this iPod4, this would change the contribution to America’s trade deficit with China into a surplus of $2.13. Of course the U.S. trade balance would then be penalized once we accounted for other countries supplying components, such as Taiwan, Germany and South Korea. However, the OECD believes that this approach would reduce the U.S. trade deficit with China by 40%, and lop 50% off the European Union’s trade deficit with China.
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