A Potential Financial Disaster That’s Bigger Than Subprime

MacLean’s’ most recent issue gives us 99 reasons why Canada is better than America. It says we’re happier, fitter, and richer – and our kids are smarter too.

While much of it may be true, there are economic factors unraveling that might give every Canadian a reason to be scared.

While our economic numbers have been strong, we need to look at the bigger picture.

Strong Growth or Just Getting Lucky?

Last month, statistics Canada released Q1 data that shows a surprisingly strong 2.5% annualized growth between January and March.

That means growth in the first quarter outperformed every three-month period over the past year and a half. And exports – particularly shipment of oil products to the United States – made a nice 1.5% gain.

It may sound like Canada is doing great, but the numbers don’t tell the whole story.

Most of Q1 growth came from trade with the U.S., and partly due to a one-off rebound in energy exports – also to the U.S. – that are now pretty much recovered after the disruptions to production from last year.

Domestic demand was soft and outlook is weak. If it wasn’t for the contribution from government, which showed the strongest component of domestic demand, the numbers could’ve been a lot worse. Expect the weakening trend to continue as the housing market softens, and consumption spending shrinks as Canadians tackle their highly elevated debt levels

According to TransUnion, the average Canadian’s non-mortgage debt – which includes credit cards, car loans, installment loans and lines of credit – reached a whopping $26,935 in the first quarter. In BC alone, the debt per person has now reached a staggering $38,619, surpassing Alberta’s $36,223.

Factor in housing costs and we’re looking at a country that is living well beyond its means (I’ll talk about the housing situation next week).

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You know there are growth issues when government spending is one of the strongest component of domestic demand – especially when the budget balance for Canada has been negative since late 2008 and the government is trying cut back on spending.

……read more HERE