Canada’s economy has outperformed the U.S. for five years, but Canadians better prepare themselves for an equally long period of underperformance, says a report from BMO Capital Markets which expects economic growth to be below 2 per cent for years to come.

That’s because, according to the report, the areas of strength that helped Canada weather the economic storm of recent years are now turning into weaknesses.

Over-indebted consumers, a softening housing market, weak commodity prices and timid business investment plans are all coming together to take the steam out of Canada’s economic engines.

Read more:
Canadian Economy Running Out Of Sources Of Growth
Canada's Export Disaster, In One Chart

“Canadian consumers were the lynchpin of the economic recovery, contributing more than half of total GDP growth in 2010 and 2011,” the report says. “Unfortunately, a good chunk of that consumption was fuelled by debt, making it unsustainable.”

The report notes that household debt in Canada has reached record levels -- something that is also putting pressure on Canada’s housing market.

“Housing was a key driver of the recovery and has increased its share of the economy consistently over the past decade, sitting close to a record high. Clearly that trend cannot continue, and the housing slowdown has already started, with sales falling and prices moderating,” said the report from senior BMO economist Benjamin Reitzes.

A slowdown in government spending will also keep the economy on the sidelines. “Deficits persist for the federal government and nine provinces. That will keep spending restrained, with real government activity expected to rise only slightly both this year and next,” the report stated.

The report also notes that “exports remain well below pre-recession levels, in part due to weak global demand, but also owing to a persistently strong Canadian dollar.”

Taken together, “domestic growth drivers are all but tapped out,” the report concludes.

Earlier on HuffPost:

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  • The housing slowdown

    Canada Mortgage and Housing Corp. predicts<a href="http://www.huffingtonpost.ca/2013/02/22/canada-housing-forecast-cmhc_n_2743550.html"> construction of new homes will fall 11 per cent this year</a>. That could be bad news for the economy, as Canada has come to be more reliant on real estate and construction-related activity than it has been in recorded history. The "FIRE" industries -- finance, insurance and real estate -- amount to 27 per cent of the economy, up from a long term average of 24. A construction slowdown could translate into big job losses.

  • Commodity prices and the oil "discount'

    Prices for Western Canadian oil are about <a href="http://www.theglobeandmail.com/report-on-business/industry-news/energy-and-resources/price-discounts-the-other-half-of-the-barrel/article9027565/">30 per cent below market rates</a>, due to a lack of capacity in the infrastructure bringing Canadian oil to the U.S., as well as the shale oil boom the U.S. is experiencing. The Harper government is lobbying furiously to get the Keystone XL pipeline built and gain greater access to the U.S., but <a href="http://www.huffingtonpost.ca/2013/02/21/keystone-pipeline-gina-mccarthy-epa_n_2735643.html">success on that file is far from guaranteed</a>.

  • Consumer debt

    Canadian household debt has <a href="http://www.huffingtonpost.ca/2012/12/13/consumer-debt-canada-2012_n_2292914.html">reached an all-time high</a>, but in 2012 Canadians still took on more. <a href="http://www.huffingtonpost.ca/2013/02/05/canadian-consumer-debt-up_n_2621024.html">Consumer debt jumped 6 per cent last year</a>. Analysts are growing concerned that Canadian consumers are over-leveraged and will eventually have to make steep cuts to their spending.

  • Consumer spending

    The flipside of Canadians' explosive debt burden is consumer spending, which is now showing weakness as debt loads continue to grow. <a href="http://www.huffingtonpost.ca/2013/02/22/holiday-retail-sales-canada-december-2012_n_2741025.html">Retail sales over the crucial holiday season posted an unexpected 2.1-per-cent decline this past December</a>, signalling that the Canadian consumer may be running out of steam, and finally reigning in those debts.

  • Government austerity measures

    A recent CIBC study estimated that austerity measures <a href="http://www.cbc.ca/news/business/story/2012/08/28/cibc-gdp-government-restraint.html">will shave 0.9 per cent off government spending</a>, which in turn will translate into a 0.2 per cent drag on Canada's GDP.

  • U.S. gridlock

    The sequester debate currently going on in the U.S. is just the latest example of legislative gridlock in Washington that can translate into economic pain for Canada. If the $85 billion in cuts that form the sequester go forward, <a href="http://www.huffingtonpost.ca/2013/02/26/janet-napolitano-border_n_2768080.html?utm_hp_ref=canada-politics">Canada can expect to see gridlock on its borders</a>, harming its very large and important trade relationship with the U.S. Pictured: U.S. House Speaker Joen Boehner.

  • Business investment

    Canadian companies' <a href="http://www.huffingtonpost.ca/2013/02/27/investment-intentions-canada_n_2773101.html?utm_hp_ref=canada-business">business investment plans are at their lowest non-recession point since 1995</a>, an alarm bell for the economy because investment is so important to the creation of new jobs and future profits.

  • Exports

    Canadian <a href="http://www.huffingtonpost.ca/2013/02/08/canadas-trade-deficit-na_n_2645297.html">exports fell 2.8 per cent in the last month of 2012</a>, a sign that Canada's largest trading partner, the U.S., is still struggling to sustain growth. But with Asia experiencing a slowdown and Europe continuing to muddle through its debt crisis, the odds of a pick-up in demand for Canadian exports are slim.

  • Global economic turmoil

    Prime Minister Stephen Harper <a href="http://business.financialpost.com/2013/01/23/global-economic-slowdown-having-fiscal-impact-on-canada-harper-says/">recently noted that a global economic slowdown is having an impact on Canada</a>. “There has been a general slowing of the global economy over the past half-year so it is obviously a concern to us. And…it’s going obviously to have some fiscal impact on us, will have some impact on the pace of job creation," Harper said.

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    The Best And Worst Places In Canada To Find A Job

  • WORST: Newfoundland & Labrador - 20.9

    Number of job-seekers for every job available, in the three months ending in January, 2013. Source: StatsCan

  • Prince Edward Island - 15.1

    Number of job-seekers for every job available, in the three months ending in January, 2013. Source: StatsCan

  • New Brunswick - 13.5

    Number of job-seekers for every job available, in the three months ending in January, 2013. Source: StatsCan

  • Nova Scotia - 12.3

    Number of job-seekers for every job available, in the three months ending in January, 2013. Source: StatsCan

  • Nunvaut - 10.7

    Number of job-seekers for every job available, in the three months ending in January, 2013. Source: StatsCan

  • Ontario - 9.3

    Number of job-seekers for every job available, in the three months ending in January, 2013. Source: StatsCan

  • Quebec - 8.6

    Number of job-seekers for every job available, in the three months ending in January, 2013. Source: StatsCan

  • British Columbia - 5.6

    Number of job-seekers for every job available, in the three months ending in January, 2013. Source: StatsCan

  • Northwest Territories - 3.9

    Number of job-seekers for every job available, in the three months ending in January, 2013. Source: StatsCan

  • Manitoba - 3.7

    Number of job-seekers for every job available, in the three months ending in January, 2013. Source: StatsCan

  • Best (tie): Saskatchewan - 2.0

    Number of job-seekers for every job available, in the three months ending in January, 2013. Source: StatsCan

  • Best (tie): Alberta - 2.0

    Number of job-seekers for every job available, in the three months ending in January, 2013. Source: StatsCan

  • Yukon: data not available

    Number of job-seekers for every job available, in the three months ending in January, 2013. Source: StatsCan

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    The Best And Worst Industries In Canada To Find A Job

  • Worst: Construction - 11.1

    Number of job seekers for every available job. Source: StatsCan

  • Arts, entertainment & recreation - 9.9

    Number of job seekers for every available job. Source: StatsCan

  • Manufacturing - 6.8

    Number of job seekers for every available job. Source: StatsCan

  • Education - 6.0

    Number of job seekers for every available job. Source: StatsCan

  • Administrative & support - 4.5

    Number of job seekers for every available job. Source: StatsCan

  • Retail trade - 4.4

    Number of job seekers for every available job. Source: StatsCan

  • Accommodation and food services - 3.9

    Number of job seekers for every available job. Source: StatsCan

  • Oil, gas and mining - 3.2

    Number of job seekers for every available job. Source: StatsCan

  • Transportation and warehousing - 3.0

    Number of job seekers for every available job. Source: StatsCan

  • Professional, scientific & technical - 2.8

    Number of job seekers for every available job. Source: StatsCan

  • Public administration - 2.1

    Number of job seekers for every available job. Source: StatsCan

  • Finance and insurance - 1.7

    Number of job seekers for every available job. Source: StatsCan

  • BEST: Health care, social assistance - 1.4

    Number of job seekers for every available job. Source: StatsCan