Canada in 2016

As I write this I am listening to Joe Cocker’s  “A little Help From Friends”  If a recent Business Week article is correct, we in Canada may all be looking for that soon.

The article relies on material from MacQuarie Financial a leading source of economic and business research.  The gist is: Canada did not suffer the chaos the US did in 2009 and following, for two reasons. 1) The country rode the commodity super-cycle and 2) the people borrowed a lot of money for non-financial purposes.

Neither is likely to continue.  This will provide interesting times for our new leader, Justin Trudeau.  T2 if you are not a fan.  The article points out that Canada is out of synch with US numbers.  More than ever before.

“What I’ve been telling clients is that Canada came through the financial crisis looking relatively good not because of productivity-enhancing advancements or anything like that, but by going through this hyper-leveraging cycle,”   MacQuarrie analyst David Doyle

As we saw in the US, balance sheet or structural recessions are more painful than routine fluctuations.   If you owe no money and asset prices change, it is not a crisis. De-leveraging is.   What can we expect?

“A best-case scenario for Canada would see the nation muddle through with a few years of sluggish growth, judged Doyle. Fiscal stimulus, a modest pick-up in non-energy goods exports, and growth in the export-oriented segments of the services sector could provide significant offset to the deterioration in credit-sensitive sectors that the analyst sees in the offing.”

Real estate and consumer capital goods are both credit sensitive.  If there will be less money around, these sectors will be affected early.  Be cautious.

Be prepared for slower growth and the customary response from governments.  Huge deficits.  More spending and less revenue is a weak formula for prosperity and is a long-run drag on the economy.

There will be trying times and those who anticipate and prepare will survive intact.  It is more like the Joe Cocker hit “When the night comes”

Hold on
I’ll be back for you
It won’t be long
But for now there’s something else
That’s calling me
So take me down a lonesome road
Point me east and let me go

A new day comes.  Be prepared for that too.

Don Shaughnessy is a retired partner in an international public accounting firm and is now with The Protectors Group, a large personal insurance, employee benefits and investment agency in Peterborough Ontario.

Contact:  705-748-5181

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