Canada has come through the financial crisis and the recession so well that there’s a risk of complacency setting in — surely, there are tough times ahead.
There’s no question that the Canadian economy and financial system had weathered the past couple of years better than most of the developed world. While we did have a recession, it was shorter and shallower than in many other countries. While our federal government had run a deficit in order to fight the effects of the downturn, its balance sheet is in better shape than most.
Canada’s domestic banking system also proved to be a paragon of stability, while much of the rest of the world teetered. Indeed, the World Economic Forum recently named the Canadian banking system the soundest in the world for the third straight year.
To capitalize on this reputation for prudent risk management, the financial industry and government have just launched a new global risk institute, in the hope that it will attract more financial services business to the country.
Even the regulatory backlash from the financial crisis doesn’t seem to be fazing Canadian firms. Hiking global capital requirements? No problem; the Canadian banks are already there.
However, a big dose of caution is warranted. While Canada’s economy has held up better than most, unemployment is still well above its pre-recession level, and it’s expected to deteriorate in the months ahead. Household debt is at unsustainable levels, and there are fears of a housing bubble, too.
Longer term, the economy is also facing some major headwinds. The Organization for Economic Co-operation and Development predicts that the potential growth rate for the Canadian economy over the next seven years is going to drop to a paltry 1.6%, more than a full percentage point below its rate over the past 10 years — largely due to unavoidable demographic trends.
This is going to put government balance sheets under a great deal more strain, compounding the challenge of eliminating deficits. And, while Canada’s economic performance may have been singularly good through the crisis, its track record in productivity growth remains unusually bad.
To be sure, Canada has had a good run over the past couple of years. But there is no time for a victory lap. Tougher times are coming — households, industry and, particularly, policy-makers must be ready to face the challenges ahead.
Quebec to drop withdrawal limit for LIFs in 2025
Move will give clients more flexibility for retirement income and tax planning