What Could Go Wrong?
As the Canadian dollar freefalls — now at 78 cents — and oil hovers in the mid-40s, what should we expect for the rest of 2015?
Derek Holt provides his perspective in this Globe and Mail article:
Canada is more dependent on energy than ever before as one in five cap-ex dollars, one in four export dollars, and 13 per cent of GDP through direct and indirect effects are derived from the sector.
Will a depreciated [Canadian dollar] and U.S. growth be enough to pull non-energy exports higher going forward and offset the pain that is sweeping through the resources sector (and not just energy)? I”™m skeptical.
In the context of all of this is a very mature household sector including: About a 70 per cent record high home ownership rate; record high real per-capita consumer spending; record high renovation spending; record high house prices; and a household debt-to-after-tax income ratio that may have stabilized but that remains elevated around records.
There are many insulating safeguards in a strong financial system and a very different mortgage market but further growth off of record highs in such variables may not get a lift from rate cuts as employment growth has cooled over the past couple of years while the housing market is operating at saturated levels of activity.
Translation? We’re toast.
As someone with US stock .. plummet away 🙂 Although ironic that every time I go to a country it starts out with a killer strong local currency to CDN ratio: England $2.20 for a pound when we started, Japanese Yen $1 for 72 yen and crashes as we leave (Pound: $1.40, Yen at par) … after having spent a year or two learning to live with a $20 bag of carrots. 🙂 Hope all is well Richard!