We welcome 2015 at a rather tumultuous time for the global economy — from falling oil prices to hacker threats against a movie studio, to a crucial election in Greece.
The global economy is at a crossroads that could see it either finally escape the aftermath of the 2008-2009 financial crisis, or it could sink back into a slowdown. Personal and public debt loads are high, while the recovery in job markets and income levels has been disappointing and income disparities within countries are widening. Many of the biggest threats to Canada’s economy will sound familiar, they’ve been building since the Great Recession, but 2015 also poses a unique set of challenges that could affect Canadians this year.
The carbon bubble is the idea that if the world’s governments meet targets to limit climate change to 2 degrees Celsius by cutting carbon emissions, there will be a glut of fossil fuels on the market that cannot be burned.
The concern is that when investors realize oil companies will have to leave much of the product they own in the ground, oil company stocks will collapse, leading to a crisis in the industry that could affect Canada. Among the people concerned about a carbon bubble is former Bank of Canada governor and current Bank of England governor Mark Carney
Protesters participate in an anti-Keystone pipeline demonstration in New York's Foley Square on November 18, 2014 in New York City. (Getty)
Many in Canada’s oil sector have been holding their breath to see whether the U.S. approves the Keystone pipeline,which would see tarry bitumen from Alberta’s oilsands pumped south for export from the U.S.
President Barack Obama did not have very nice things to say
about Keystone in his year-end press conference, leading some to believe he’s bent on rejecting it. The lack of a functional pipeline capable of getting the oilsands crude to international markets has held back the price of crude produced there. There’s also massive domestic opposition to homegrown alternatives such as the Energy East Pipeline or Northern Gateway.
The House of Commons in the Parliament of Canada. (Getty)
This promises to be a big year for elections around the world, with votes at home and abroad. The Conservatives presided over a Canadian recession that was relatively mild compared to much of the world, but after nearly a decade of Conservative rule, voters could be ready for a change.
The U.K. is looking ahead to an election in May. If the U.K.'s Conservative Party wins and follows through with its promise to hold a referendum on EU membership, it would be a further blow to the Eurozone. The U.S. is looking ahead to an election in 2016, and the year before an election in that country has proven to be an often interesting, volatile ride.
Weak demand and a glut of supply are keeping prices of commodities low, and it doesn’t just affect Canada’s oil patch. The mining sector, one of the heaviest hitters on the Toronto Stock Exchange, could see a resulting slowdown in investment in projects and hiring.
Canada, along with the U.S., is on track for an interest rate hike in 2015. It would be the first since 2010 and consumers — particularly on this side of the border — have continued to pile on debt loads and take out large mortgages in the years of low interest rates.
While any hike is expected to be gradual, it could be a shock to some households who are struggling to pay back debt. A higher interest rate could sink more Canadians into bankruptcy
and could cause a slowdown in the housing sector, which has propped up Canada’s economy in the years since the recession.
Economists have been warning consumers for years that debt loads are growing to astronomical levels, and that could be a huge risk if interest rates rise. In Canada, the household debt-to-income ratio rose to a new record high of 162.6 per cent in the most recent quarter.
And things are not much better south of the border, where consumer debt is worth a total of $3.2 trillion and where there has been a resurgence in subprime lending
, the risky banking practice that helped spark the global economic crisis in 2008.
Pro-ISIS demonstrators in Mosul, Iraq, June 16, 2014. (AP)
An increase in terrorism and geopolitical instability doesn’t inspire confidence in investors. Threats from ISIS and other terrorist organizations have dominated headlines in the past year and such political uncertainty could spill over into broader conflicts or destabilize markets.
Russian President Vladimir Putin (Getty)
Russia’s ruble has sunk by about 40 per cent in the past few weeks, and the country could soon find itself in recession, partly due to Western sanctions over its aggressive behaviour in Ukraine.
As a G8 country, it is a large source of demand for Canadian exports. The country already slapped retaliatory sanctions on Canada in 2014 and the lack of trade could hit Canada’s overall trade figures.
A newly built 'ghost town' near Beijing shows the risk of a housing bubble in the country. (Getty)
Chinese growth has been a massive driver of the global economy but is losing momentum, affecting the entire global supply chain. Investors are hoping that China’s GDP growth does not come in worse than the 7-per-cent rate it has predicted.
A chain reaction caused by the slowdown in China could be particularly concerning for Canada, which had been protected from the worst of the Great Recession, benefitting from Chinese manufacturing’s demand for commodities. In addition, the unrest in Hong Kong, one of the world’s financial hubs, is not over, posing a risk of more uncertainty in the region.
Greek farmers shout slogans during a protest in central Athens, on Tuesday, Nov. 25, 2014. (AP)
That’s right, Greece is still causing Europe, and global markets, some serious headaches five years after its sovereign debt crisis was first brought to light. It is again making headlines as the new year approaches, with legislators rejecting Prime Minister Antonis Samaras’s nomination for president, Stavros Dimas
, triggering a snap election.
Polls favour anti-austerity candidates, which could see the country pull away from its debt obligations under its bailout plan with the Eurozone, stoking concerns for the rest of the continent, which is already struggling with sky high unemployment and a shaky financial system. A slowdown in Europe would have knock-on consequences for Canada.
After five years of relatively stable crude prices, oil prices have dropped nearly 50 per cent since June to their lowest level in five years. The drop is a double-edged sword for the Canadian economy. The IMF says it could boost global economic growth by as much as 0.8 percentage points above the expected 3.8 per cent. It’s also good news for consumers, whose savings at the gas pump could translate into more spending elsewhere.
However, if oil continues to hover between $60 to $70 a barrel, it could expose weaknesses in oil-dependent countries and companies and even push some to default on debt obligations. The tanking price is bad for Canada’s oilsands, a major source of domestic economic growth and could push the loonie lower.
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