It’s not much of a secret that Canadians have been on a spending spree the last couple of years. The record low central lending rate has kept interest payments at a minimum but it has also encouraged borrowing of money to the point of record breaking debt levels; records on both ends are not helpful for the Canadian economy. Despite this the interest rate levels are not the most worrying sign for some financial consultants; instead unemployment is their biggest worry.
These consultants point to a survey from the Canadian Payroll Association that shows 47 percent of respondents would be in financial trouble if their pay was late by a week; or say they lost their job. While this is down from the 57 percent mark a year ago it still is a sign that nearly half of Canada’s working class, in debt up to the eyeballs, would be unable to make payments and survive if a threat to their job security happened to creep up on them. The fact that household debt has continued to rise over the past year only fuels the burning fire of these worrying signs.
Another cause of concern for Canadians is a statement from the firm Moody’s Analytics at a high end business meeting in Calgary last week. There, they stated that the chances of a new recession in Canada now stand at one in five. With interest rates forced to remain so low due to deteriorating global conditions in the U.S, Europe, and a slowdown in growth in China, Brazil, and India; if any of these markets slip back into recession as Europe already has and the U.S. is teetering very close to, it would be near impossible for Canada to escape from feeling the heat.
The worry is that if Canada goes down with the rest of the world again, a new recession would drive unemployment up across the board especially in areas like manufacturing. With so many working Canadians unable to make ends meet if they miss a week of payment, a lot of analysts fear outstanding debts could default and a credit crisis could spread across the country.
BMO’s Deputy Chief Economist Doug Porter says that rising interest rates Canadians can adjust to. He says that would encourage tighter spending by cancelling more extravagant expenses and sticking to the basics on necessities like groceries.
But if unemployment numbers begin to rise, those options won’t work for long for most Canadians. Without regular income many people would be forced to dip into their savings which would ultimately add to the economy’s struggle.