Economic concerns

The United States and its neighbours experienced the Great Recession due to the U.S. housing bubble that erupted in late 2007. The Great Recession was due to a combination of “crises” in the United States, including a high household debt of US $13.8 trillion (roughly 160 per cent household debt/GDP ratio), a housing bubble, a large government budget deficit, and a trade deficit – which occurs when imports are greater than exports in a nation.

Canada appears to be experiencing similar conditions as pre-2008 U.S., with a record high household debt-to-GDP ratio of 164.62 per cent. The breakdown of the debt reveals that 64 per cent is due to mortgages, 28 per cent consumer credit (i.e., credit cards), and 8 per cent non-mortgage loans. Paired with this large debt is the slowdown in the labour sector, when the economy unexpectedly lost 21,900 jobs in January. The unemployment rate has decreased from 7.1 per cent to 7.0 per cent; this is a misleading statistic, as individuals who give up on their job searches are no longer counted within the unemployment rate. Many economists in Canada are arguing that the labour market caught up with the slow growth in the economy. Nonetheless, these are not the most comforting statistics.

Along with a large household debt and weak economic growth is another problem: the so-called housing bubble. Since 2000, Canadian housing prices are up almost 100 per cent from their previous values, and combined with about $500 billion in high-risk or subprime mortgages, this makes up nearly 50 per cent of our housing market. The government is making it harder for individuals to purchases houses with the current low interest rates by making mortgages more difficult to obtain; however, many cities in Canada (mainly Vancouver and Toronto) are seeing a large decrease in housing sales. In order to sustain long-term growth, Canada will need a correction in its housing prices, and will have to increase its interest rates, though preferably in the future, as doing so right now would have detrimental effects on households with large debts.

It is true that the Canadian trade deficit has been reduced from $1.7 billion to $901 million. On the surface, the decrease in deficit appears to be an improvement to our economy, until we get a closer examination behind the numbers. The decrease in trade deficit occurred due to a 0.9 per cent decrease in exports and 2.8 per cent decrease in imports. Our dependence on other economies’ improvements to better our domestic conditions should be of concern.

With a halt in the Keystone XL pipeline with our primary trading partner, economic growth in Canada could be imperiled. What is also alarming is that approximately 80 per cent of our exports are directed to the U.S., showing a large interdependence between the two economies. As the saying goes, never put all your eggs in one basket. That’s why the government’s effort to introduce free trade agreements to Asia and developing a possible pipeline to export oil to the Asian market is very important for future economic growth, and will help Canada continue to avoid the economic issues that persistently trouble the U.S.