Canada’s Economic Woes Could Mean Trouble for the U.S.
March 5, 2019
Our neighbor to the north saw its economy practically grind to a halt at the end of last year, which could have consequences for our economy. Canada’s economy grew by just 0.1 percent in Q4. While falling oil prices meant a slowdown was anticipated, it ended up being much more widespread and direr than expected, leaving Canadians in a precarious position.
Canada’s housing bubble has burst. Toronto homes lost 4.3 percent of their value, and sales were down 12.7 percent year-over-year. Vancouver fared even worse. Homes there lost 4.5 percent of their value, and sales fell by a staggering 39.3 percent. This is bad news for the labor market too. At year’s end, 7.7 percent of the Canadian workforce worked in construction. This means that any slowdown in construction could send unemployment sky high.
Household debt in Canada is already worryingly high, sitting at 174.6 percent of income, as compared to 99.4 percent in the U.S. Even at its peak, just before the financial crisis, American debt was at 133.8 percent of income. Many Canadians are already having trouble keeping their heads above water. Canadian officials report that 5.1 percent more households and 8.9 percent more businesses filed for bankruptcy protection in November 2018 than in the same month a year earlier. The situation could get even worse, as an MNP Ltd. poll conducted this January found that an increase of C$200 in monthly expenses would send 46 percent of Canadian households into insolvency.
All of this could be bad news for U.S. companies. Canada is one of our largest trading partners, and exports to Canada totaled $275 billion in 2018. As personal consumption dwindles in Canada, the amount spent on American goods and services will shrink along with it. The slowdown could also weaken Canada’s currency, making it harder for American corporations to export goods to Canada, reducing their profits.