For months now there have been warnings that the world is teetering on the brink of another global recession that could hit even harder than the one in 2008. The effects of continuing debt problems in Europe along with slower growth than expected out of China are starting to make their impact on the U.S. economy; and as Canadians know when something hits our southern neighbours, Canada is not far behind.
As Canadians have been encouraged by banks, financial centres, even governments to contribute to the economy; a massive slowdown beyond the borders is making all that encouragement seem like fuel for the financial fire.
Going into the recession, Canada was fortunate enough to have a very small deficit on the books with much of the national debt having been paid down. Together with the banking system that stands apart from much of the rest of the developed world, the Canadian economy did take a beating but avoided much of the pain that bled into many of the world’s other leading economies; this time around things won’t be so lucky.
What helped fight back against the 2008 recession was governments worldwide stimulating their economies with billions of dollars to both bail out banks and ease some working capital back into the economies. Unfortunately now as things appear to be heading in that direction again, governments are out of money and borrowing power; there is no more ability to bail the situation out with more debt except with very high interest rates that many countries in Europe especially, are unable to afford.
So what does this mean for the average Canadian consumer? It means that what happens outside our borders will eventually work its way in. The recession that is all but underway in Europe is spreading to the U.S. while China’s growth, the one thing the world was counting on is beginning to slow down dramatically. Canada is not shielded from this and without countries able to buy our resources, money will not be coming in as greatly as it has over the last few years; and this will cause a ripple effect on employment, access to credit, housing prices, and especially interest rates.
Financial advisors are encouraging Canadians to prepare for what is coming, to take necessary steps for protecting your finances. The Bank of Canada has already hinted that the central lending rate will be rising soon; whether the latest global news changes that is yet to be determined. But advisors are encouraging Canadians to lock mortgages in now at the lowest rate possible before that happens, to pay off credit card debt before rates rise, and wherever possible get rid of unneeded debt entirely. Canada braved the storm once before because of low national debt; that’s not the case anymore, now we have to manage on our own.