If 2011 taught economic prognosticators anything, it was that in a world still teetering on the brink, optimistic forecasts are perhaps best kept to oneself.
As Doug Porter, deputy chief economist for BMO, noted on Thursday, “a witches brew of events” — including uprisings in the Middle East, the tsunami in Japan, the United States debt ceiling debacle and the European debt crisis — hampered what many thought would be a solid return to growth this year.
“All of these factors combined to rob the recovery of any serious momentum and, in fact, it managed to trigger an outright decline in second-quarter GDP in Canada,” said Porter, referring to the unanticipated 0.1 per cent dip that renewed fears of the country sliding back into recession.
Looking ahead to 2012, it should come as no surprise that potential trouble spots are front-and-centre, as a compendium of worst-case scenarios cloud the economic outlook.
Here are five reasons we could be in for a bumpy ride.
5 Economic Landmines That Could Blow Up On Canada
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1. RISING HOUSEHOLD DEBT
Canada's household debt burden climbed to yet another record high in the third-quarter, prompting Bank of Canada Governor Mark Carney to call it "the greatest risk to the domestic economy." At 150.8, Canada's debt-to-income ratio is now higher than in the U.S. or the U.K. Meanwhile, household net worth fell, which, as many observers have warned, has made Canadians more vulnerable to adverse economic shocks.
2. SLUGGISH CONSUMER DEMAND
Though BMO's Doug Porter maintains that low interest rates and modest job growth should prevent household debt issue from becoming "a clear and present danger to the outlook in the year ahead," he predicts that the debt burden is likely to increase, which is "reflective of the fact that there's very little pent-up demand for Canadian consumers."
Unlike in the U.S., Canada's consumer recession was "very mild," leaving scant room for growth, he says.
"At best, we see consumer spending growing in line with income next year," he said. "We've actually pegged it a little bit below income growth next year ... at less than two per cent in 2012."
3. INSTABILITY IN THE EUROZONE
When TD cut its 2012 outlook for the Canadian economy earlier this week to 1.7 per cent, the bank cited a deepening fiscal crisis in the eurozone as one of the primary factors. More bearish than BMO, which on Thursday held its expectation for Canada's GDP growth next year at two per cent, TD is forecasting "a deterioration of financial conditions and a significant European recession in the first half of next year."
"A deepening recession in the region will exert a significant drag on the global economy," the bank maintained. "Canada will be negatively impacted through weaker commodity prices, confidence and export growth. Labour markets will also soften as a result."
4. CHINA LOSING STEAM
The signs are abundant that the world's largest economy is cooling. Mounting local government debt and slowdowns in everything from industrial production to the housing market has led many to predict softer economic growth in 2012.
"Real estate is a locomotive industry that leads at least 58 other industries," Cai Weimin, who runs a real estate think tank in Shanghai, told NPR. "Doomsday probably won't come true in 2012, but for the Chinese economy, 2012 will be a very tough year.
5. GROWING INCOME GAP
As Canada's rich-poor divide widens, some experts warn that the concentration of wealth at the top of the income distribution and stagnating wages for everyone else could be a drag on the economy. Though Canada's income gap is not as pronounced as in the U.S., Canadian Centre for Policy Alternatives economist Armine Yalnizyan argues that the growing divide is bad for business all the same.
"Real growth in purchasing power has been restricted to a small fraction of Canadian consumers in what is already a small market," she maintained in an op-ed in Canadian Business magazine. "Throttling aggregate demand slows the economy for everyone."
Anne Golden, president and CEO of the Conference Board of Canada, echoes this sentiment.
"Growing inequality distorts consumer patterns," she told The Huffington Post in a recent interview. "Most businesses, except maybe for Porsche [dealerships], rely on rising purchasing power of the many, not the few, to deliver growth and profits."