Boom or Bust Next for Canada's Economy: That is the Question

Although U.S. trade protectionism and oil prices still worry Canadian executives, on the whole they are now much less worried about the economy than they were a year ago. According to the Financial Post, the most recent quarterly CPA Canada Business Monitor survey found that 38% of the executives have an optimistic outlook on the Canadian economy, up from 22% a year ago. Only 15% of executives are pessimistic, down from 31% a year ago. Canadian executives are also quite optimistic about their own businesses: 58% have an optimistic view of the prospects of their own companies, up from 45% a year ago.

Q1 2017 CPA Canada Business Monitor (source: cpacanada.ca)

Uncertainty surrounding the Canadian economy and the state of the U.S. economy are bothering just 14% of the executives. But many economists insist that there are serious reasons to worry about the Canadian economy, stemming from the hot housing market. Karl Schamotta, director at Cambridge Global Payments, told the CBC that, in the past 17 years, Canadian real estate and construction sectors have significantly outpaced the rest of the economy, and supported the financial sector. 

If the housing prices fell as a result of a quick rise in interest rates, the impact on the entire economy could be severe: people would spend more on servicing higher mortgage payments which could lead to less discretionary spending and a consumer-led recession, joblessness would rise, and this could put downward pressure on prices.

But, on the upside, says the CBC, just about everyone agrees that this nightmare scenario is still unlikely. The article provides Benjamin Tal’s (deputy chief economist at CIBC World Markets) quote that everyone in Canada, including policy-makers, banks and even developers, is trying to slow down the housing market, which is a big difference with the U.S. housing crash in 2007-2009.

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