Things may seem bleak at the present; however, the Canadian economy will eventually recover.  Dungan and Steve Murphy at the Policy and Economic Analysis Program expect that the Canadian governnment will run deficits for a few years and they urge Ottawa not to repeat the mistake of raising employment insurance premiums before a recovery.

Low prices for oil and other natural resources will slash corporate profits and government tax revenues, forcing Finance Minister Jim Flaherty to revise numbers in his recent economic update. But Dungan says a dollar near 80 cents (U.S.) next year and U.S. spending on infrastructure should give manufacturers breathing room before oil and other commodity prices rise again and lift the dollar back above 90 cents by late 2010.

Dungan’s forecasts assume Canada will still have an auto industry. But its export value has already fallen from about 10 per cent of Canada’s total economic output in 2000 to about 4 per cent, he says. Meanwhile, his economic model suggests the fall of the dollar to 80 cents would normally be enough to offset most of the effects of a U.S. economicslowdown.

For Canadian businesses, this means that good times will eventually return.  The challenge is to hang on until we can see the light at the end of the tunnel again.