Credit crunch and Canada growth

For the nowadays economic environment, there are many companies and events still are impacted by the financial recession in 2008 in Europe and North America. The main reason behind to the financial recession is the credit crunch or credit crisis. At the start of the recession, it is started as the French bank BNP which sharp increasing in the cost of credit on August of 2007 and the world recognize how important for that issued would be impacted. In the next 2 years, there are many of banks or financial institutions were collapsed, it included the major bank of Lehman Brothers, and there are hundreds of Bank was influenced by the credit crunch, such as Lloyds TSB. It is like the domino effect, one bank was injured and other banks will be impacted by that.

The credit crunch can be identified as the lack of availability of credit to consumers and business from traditional financial institutions. It will be leading the banks or financial institutions to bankruptcy protection, collapsing, restructuring investment and making large amount of losses. Additionally, the root reason for credit crunch is that banks have set the low interest rate which encourages consumers spending more confidently rather than borrowing. In developed economic countries, the interest rate became the lowest rate in long term history. The other reason to cause credit crisis is opening the international saving in emerging economic such as China and Japan, and it makes the domestic capital liquid to the other countries but the return was low. Thirdly, the impact caused by the 9.11 events of American recession in 2011.   

In order to reduce the damage from the credit crunch, investors might sell their subprime mortgage such as securities. In general, predatory mortgage lending would be occurred in the subprime market. The subprime market is used for judging the capacity of repayment for organizations, and it will give the rate of level for organization to banks to make decision, such as AAA, AA+ to D level. Additionally, it shows that the AAA to BBB- rate of level of organization is possible to accept to investment and the BB+ to D of rating company is suggested to reject.  

The credit crunch is also will impact the GDP of country and the profitability of company generally negative. There are five methods for management team to survive in the financial recession:

1.      Understand and maximize the current cash position

2.      Identify and aggressively minimize operational risk

3.      Scenario planning

4.      Review and prepare for divestitures

5.      Maintain confidence of key stakeholders

According to the Wall Street Journal, there are 17% of Canada’s mid-sized companies had disappeared from 2006 to 2010, and the manufacturing industry was suffered more pain which half of mid-sized companies vanished at that time. The reasons for this disaster are not only become of the recession and global credit crunch, but also the rise of China and steep dollar. The rise of China had improved the level of competition for the Canada companies especially in the manufacturing industry. Moreover, the steep dollars impact the Canada dollar drop in the unsteadily.

BDC Chief Economist Pierre Cleroux point out Canada is possible to follow the Germany’s Mittelstand firms which have achieved the success under economic crisis. However, according their weight which 16% of all jobs, 12% of Canada’s gross domestic product and 17% of the value of exports, Canada is hardly to achieve success like Germany. Additionally, it is hardly to many find skilled workers to deal with the stronger competition. However, it is more possibly to grow their economy by invest more in productivity.