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.