When the global financial crisis hit in 2008 and much of the world went into a recession, here in Canada we felt pretty safe. Sure we may have dipped into a recession slightly for a short period of time. But for the most part our economy kept churning, and we kept spending in order to support it. Now though, consumer debt levels are higher than ever, which could cause a setback in consumer spending. This is what’s caused Moody’s Analytics to release a report stating that if Canadians do pull back the reigns severely on their spending, it could trigger another recession.
The report is called Storm Clouds Gather Around Canadian Consumer Credit, and it tells us that if outside economic conditions continue on as they are in many of the G7 countries, and if we continue to spend the way we have been, Canada has a 20 per cent chance of falling into another recession.
The problem is that spending, and how we’ve been using low interest rates to do much more of it. This has led us to push ourselves against a wall, leaving no room should economic conditions worsen. Unlike four years ago, we simply don’t have the money to spend and support our economy.
“There’s a legitimate fear there may be a Wile E. Coyote moment here,” says Mark Hopkins, senior economist at Moody’s and one of the authors of the report. “Households are spending money they assumed would be coming, then they realize they’ve run over the cliff because income from exports from these trading partners is not materializing and that’s translating to weaker jobs.”
Which is translating into us not spending as much as we once did. But exports are only one driving factor of our economy, and they’re not even the largest. What is? Consumer spending, and that’s another area of concern.
“Right now it all depends on the household sector and the household sector is overstretched, especially compared to historical trends,” says Hopkins.
So, are we going to continue spending until we absolutely can no longer; and then just watch as our country pummels into the ground? Not likely. Cristian deRitis, also co-author of the report and director at Moody’s says that while things are bad,
“They’re not as catastrophic as they were in the U.S.”
Still, we can only compare ourselves with bad to feel good for so long; and that means we shouldn’t settle for being happy with keeping ourselves from hitting rock bottom. So what’s the answer?
Ironically enough, it’s not to go out and stop spending. But rather, taper it so that, should things get any worse outside the country, we’ll have the means to make them better within. Just like we did last time.
