Is it over?  That’s a question I asked in December 2008 after several months of news about the impending economic apocalypse.  I can say with confidence now that it wasn’t over and here in May 2009 I’m asking it again.  Is it over and our blue skies ahead?

I say that for a couple of reasons. Over the last few months we’ve seen commodity prices start to rise again.  Of course the one we think of the most, which is the price of oil, has almost doubled from $35 a barrel earlier this year to $62 a barrel this week.  We have also seen other commodities rise including Copper, soybeans corn and wheat.  The other reason I’m thinking blue skies might be ahead is the rising value of the Canadian dollar.

I have written At Issue for as long as CKtimes.ca has been in existence.  Of course over that time I teased John about his editor’s note every Tuesday.  For week after week he would say that I was commenting about the Canadian dollar.  It is true I commented a lot about it in the past because it is an integral part of our economy.  However since John has made that comment so many times and since I made him aware of it I have gone to great lengths not to comment on the Canadian loonie.  However when it goes from $.77 US on March 9 to almost $.90 US this past week, that’s $.13 in about 10 weeks!  That’s news no matter how you look at it and I’m sure it even impresses my friend John.

You can ask yourself why the Canadian dollar has been so impressive.  The smart money says that the surging commodity prices from their lows earlier this year always sends investors into currencies that benefit from commodity prices.  That certainly is the Canadian dollar.  At the same time the US greenback has fallen as fickle currency traders abandon it for at least short-term greener pastures.

This is probably not the best news for Central Canada.  In Ontario and Québec the manufacturing sector has led the way in the current recession.  Of course it has been battered from declining American demand for our goods like auto parts.  Of course it also was battered because the Canadian dollar rose to a dollar 10 US on November 7, 2007 and has been working back ever since.   So when the dollar got down to $.77 US on March 7 of this year it was a stimulus effect to the Ontario economy, which really needed it. Now with the loonie once again feeling its oats it’s not the best of news for the Ontario economy.

The news is even worse for Federal finance Minister Jim Flaherty.  In the January budget he had estimated that the government would run deficits for five years and had predicted a $34 billion deficit for 2009/2010.  He is estimated that there be $64 billion worth of deficit over the next two years including $30 billion in 2010/2011.  Meeting with other provincial finance ministers in Meech Lake, Quebec, he announced that the deficit would be higher; some say at least 9 billion more over the first two years because of the difficult economy.  Other private sources said that it would be more like $18 billion more.

So you can see that with a loony going up to $.89 US today that only makes Jim Flaherty’s job more difficult and it will put more pressure on that government deficit.  The question is will the boost in commodity prices currently going on somehow help that government fiscal situation?  For instance when oil tax revenues were higher at $147 a barrel the government was flush with cash.  When we got down to $35 a barrel things were in reverse so you would think at $62 a barrel things would be better for the government.  However even with these projections that doesn’t seem to be the case.

So maybe this recession isn’t even close to being over.  Measuring these things is always difficult because economics is a moving target, you change one thing and then there is a series of other economic variables that come in to play to offset everything else.  At this point it’s hard to say exactly where we are because we still have that $40 billion government stimulus moving throughout our economy.  Needless to say, if you live in Ontario this recession has surely been painful.

Finance Minister Jim Flaherty says it might even take more government stimulus to get this thing moving.  After he came out of the meeting with provincial finance ministers he looked like he had been in a wrestling match.

So the road ahead is still lined with potholes regardless of the price of commodities and that surging loonie.  That surprises me a bit but just remember I’m not paid the big economist dollars like Jim Flaherty guys are.  I just throw darts at a dartboard.  Jim Flaherty’s economists have a lot bigger board.  In this current economic environment, I’m hoping they begin to start hitting bull’s-eyes.