(January 5 – 12:15 ET) – An article in today’s Economist pegs Canada as the country most vulnerable to a U.S. recession.

Citing a report from the HSBC banking group, The Economist says a recession in the U.S. might export trouble to other economies through trade, commodity prices, foreign investment, exchange rates and share prices. Canada, Malaysia and Mexico are cited as most exposed nations to a U.S. downturn. Canadian exports would be hard hit due to the extent of our cross-border trade.

The Economist foresees trouble from a slump in demand for oil and other raw materials which would hurt Canada, as well as Mexico and Malaysia, yet Europe and Japan could benefit. On the other hand, Europe and Japan would be adversely affected by a drop in foreign investment.

“Putting all these factors together, HSBC ranks countries according to their overall exposure to an American recession. Mexico and Canada are by far the most vulnerable; Japan and the Euro area, the least,” the article states.

The likelihood of a recession appears to be on the increase too, signaled by this week’s surprise rate cut from the U.S. Federal Reserve. The Economist notes that Goldman Sachs’ model of the probability of recession rose to more than 50% last month, up from 35% in November.

HSBC is predicting a recession for the U.S., although it expects world growth of 3.2% and 2.7% in 2001 and 2002, respectively.
-IE Staff