It’s something that no one wants to think about, and even fewer want to talk about – another recession. But with global economies suffering all around the globe, including that of Europe’s and the United States’ it’s hard to say that the world is immune to that very thing. The question for us here at home is, would we emerge as victorious as we did last time?
After the housing crash of the United States happened in 2007 and 2008, Prime Minister Stephen Harper took the opportunity during the 2011 election to say that, thanks to him and his minority government, Canada was “the closest thing the world has to an island of security and stability.” And that may have been true at the time.
Between 2009 and 2011, Canada received $326 billion in net capital flows from global investors – a sure sign that people around the world could clearly see that Canada was where the money was to be made. And as the U.S. dollar continued to plummet due to natural disasters and a failing economy, Canada’s continued to climb a whopping 38 per cent above that of America’s dollar. And, over the course of seven years, Canada’s benchmark stock index had also outperformed that of the United States. But, that was then.
Today, Canada wouldn’t have the same advantages going into another recession that we had last time. Because so many economies around the globe are all falling – hard and at the same time – export markets have only risen 13 per cent. While the increase may sound like positive news, it’s still 6.9 per cent from where they sat before the recession. And even with the historically low interest rates on borrowing, the Canadian government won’t be able to rely as heavily on consumers this time around to keep the economy churning.
That’s because household credit also had the slowest rise, this time in over a decade. Household credit rose only by 5.6 per cent from where it was ten years ago and the smallest increase seen since 2009. That may be good news to the government, as they’ve been constantly warning Canadians about the debt they were taking on – both in consumer and mortgage debt. But even with the silver lining, it still shows that consumers won’t be as eager to get out there and drive up our economy by putting themselves in debt.
And the housing market might not be there either, for the government to fall back on. Vancouver’s market is nearly frozen, with sales falling 28 per cent in June of 2012 when compared with June of last year. In Toronto on the other hand, prices are still very high but this market too, still saw a decline of 5.4 per cent when June of this year was compared with June of last. Add to that the fact that both the federal government and the banking regulator have recently imposed new rules to make it tougher to get a mortgage, and buyers are certainly fewer and farther between.
Banks have also made getting a mortgage even tougher still; and Moody’s has just downgraded the status of Ontario bonds. Things certainly don’t look as cheery as they did three years ago. And that island Mr. Harper referred to might slowly be sinking. But that’s not to say that we’ll be completely over our heads. While consumers might be withdrawing from being the biggest source of the economy’s growth, it looks as though Canadian businesses might be ready to step in; and the protection the banks are surrounding themselves in might prove to be a useful thing.
That’s because Canada has the strongest banking system in the world, according to the World Economic Forum – and it’s still the strongest. And those tighter rules they’re adhering to, and imposing on themselves, are going to protect the banks from lending too much money to those who can’t afford it – the very reason for the demise of America’s housing market.
And businesses will also play their role – and maybe even a bigger one should another recession hit. During the last recession, businesses had to be much more careful than consumers about how much debt they were racking up, and many chose to not take on any extra debt at all, not bothering with things like construction financing for new developments; but instead, funding it themselves.
“We just prefer to be masters of our own destiny,” says Gerry Price, president of Price Limited. “It slows us down a bit, but it’s probably worth it in the long run.”
But we still have more than just the banks and the businesses to rely on. And after all, Canada’s economy is far from tanking completely. Our government still has the best finances of all the countries in the G-7; and while we’re taking on less debt and paying more off by the day, wages and employment are also continuing to climb. And even though there might be a lot of foreign takeovers and layoffs, Canadian employers as a whole have still added 155,500 jobs to the economy since February of 2012.
If we can keep things up at that rate, we might just be able to continue being the “Island of Stability” after all.
