When we think about economic fiasco, it’s Greece that pops up in our minds. But truth is, Greece is not alone on the list. Canada is now faced with a horrible dilemma called a “slow contraction”, says the governor of the Bank of Canada, Stephen Poloz.
Nowadays, most of the country’s industries are faced with turmoil adding to the Canada’s shrinkage by almost 0,2% this year. The most affected industries are manufacturing, oil, wholesale trading, mining as well as fields that are related to the oil and gas extraction. Canadian and world economists blame it exclusively on the oil crash and weakening of the currency. Some of the local oil companies tend to even lay off a certain part of their staff. These and many other events lead one to conclusion that Canada nowadays has one of the vulnerable economies and here are some of the reasons why.
First goes the household credit. Even though the population of the country seems to be pretty conservative, it’s been consuming debt with the speed of light. Today, the total household debt reaches $1.82 trillion that exceeds 160% of disposable income. In other words, it would take more than twenty months for a Canadian family to totally pay off its debt if the interest rates were 0% and in order to do so they’d completely spend their disposable income.
Second problem is about housing prices. Just like in the mid ‘90s, the prices for homes are getting uninterruptedly higher. In contrast to the USA real estate market that is well-balanced nowadays, prices in the homeland of maple syrup keep on rising. To illustrate that, one should take a look at Vancouver that is the second least affordable city on the globe and Toronto, where an average price of a single-family home reaches the level that is much higher than one million dollars.
The oil crash started more than one year ago. Oil supplying companies like Schlumberger are faced with harsh necessity to cut jobs. As for the country’s main oil-producing province – Alberta, its rate of unemployment got from 5,5% to 5,8% this year. It seems like the effect of falling commodities costs on the economy is not going to improve anytime soon.
Some of the global experts tend to compare Canadian economic slowdown with the Looney Tune character. Funny as it is, it looks like this crazy coyote from the Niagara Fall land has already run off the highest cliff. He’s still moving his feet, but there’s a second or two to look down. It’s just a matter of time till the moment, when gravity starts to work.
To cut the story, it’s important to point out that certain adjustments are being made to take the economy of Canada up to the next level. In particular, the measures include cutting of interest rates in order to provide the loaners with an opportunity to finally pay off the debt.
References:
S. Baker, N. Bloom and S. J. Davis, “Uncertainty and the Economy,” Policy Review 175 (2012): 3-13.
“Canada Cuts Interest Rate and Outlook on Economy”, The NY Times, July 15, 2015.
Jeff Lewis, “Oil Sands Mines Face Growing Challenges as Supply Costs Rise,” Financial Post, May 28, 2013.
“Security and Prosperity Partnership of North America”, Report to Leaders, June 2005.
Iain Wallace, “A Geography of the Canadian Economy”, Oxford University Press, November 23, 2001.
Green, David A., and W. Craig Riddell, “The Economic Effects of Unemployment Insurance in Canada: An Empirical Analysis of UI Disentitlement”, Journal of Labor Economics, January 10, 2006.
Allan, David C., and Philippe Bergevin, “The Canadian ABS Market: Where Do We Go From Here?”, C.D. Howe Institute Commentary, 315.
Melino, Angelo. “Moving Monetary Policy Forward: Why Small Steps – and a Lower Inflation Target – Make Sense for the Bank of Canada”, C.D. Howe Institute Commentary 319.