BUSINESS

5 Reasons Not To Panic About Canada's Economy

08/28/2015 06:51 EDT | Updated 08/28/2016 05:59 EDT
A recent spate of frightening economic headlines paints a dire picture of the economy, but an examination of some basic gauges of Canadians' financial health demonstrates it's not all doom and gloom. 

News of plummeting oil prices, the struggling stock market and a loonie that recently dipped below the 75-cent US level for the first time in more than a decade have Canadians on edge and fearful for their their futures, as economists debate whether this country is in a recession.

But already, things are looking up. The North American and global stock markets surged on Thursday, oil rebounded to above $42 US a barrel and the Canadian dollar recovered to above the 75-cent line.

While the effects of the economic downtown on Canadians should not be downplayed, there are plenty of reasons not to panic — hiring remains steady, home values are up, gas prices are down, people are generally managing their debt responsibly and most Canadians have nice nest eggs of savings and investments. 

Most people are working 

The most recent job numbers from Statistics Canada show that employment in Canada is steady and job growth is modest. 

In July, the economy created 6,600 additional jobs, and the unemployment rate remained at 6.8 per cent for the sixth straight month.

"Make no mistake, this is not a strong report ... but it's also not notably weak," BMO chief economist Douglas Porter told CBC News at the time. "While many have been quick to label this year's economic performance a recession, the job numbers just haven't backed that up." 

As of July, Canada had added 100,000 jobs in 2015, despite a major downturn in the oil and gas sector.

Housing market defies odds 

The value of Canadians' homes also continues to climb, despite a shrinking economy. Canada's Teranet-National Bank House Price Index was up 1.2 per cent in July.

In a Reuters poll released Wednesday, 20 analysts predicted this trend would continue. Canadian home prices will likely rise 5.2 per cent this year, they said, followed by two per cent in 2016 and 2.3 per cent in 2017.

Mark Hopkins, senior economist at Moody's Analytics, called Canada's housing market "bullet-proof."

"It seems to not only be defying the odds in terms of surviving the large downturn in the global economy, but even now with gross domestic product contracting, it seems as though existing home prices have accelerated, which is a bit strange and counterintuitive," he told Reuters.

Gas prices are down

Gas prices are down all over the country, providing financial relief for Canadians. People can take the money they save at the pumps and use it to invest, spend or pay off debt. 

Thursday evening, the average cost of a litre of gas in Canada was down 2.7 cents from the day before, 7.0 cents from a week ago, 7.7 cents from a month ago and 20.6 cents from last year, according to GasBuddy.com.

"There's a significant decrease over the past week across the board, which is not common. You usually see energy prices move here and there, but the drop has been dramatic," Dan McTeague, senior petroleum analyst for the site, said. "It does represent some relief for those who have been paying exorbitantly high prices for fuel."

While it's impossible to predict gas prices with certainly, McTeague expects they will remain low for the foreseeable future, barring any extreme events.

"It looks like there's a fairly decent balance between supply and demand, so that will keep a lid on prices or keep them moving down, but we will get hiccups," he said. 

Debts getting paid 

Canadians are deeper in debt than they've ever been, but they're managing it very well, according to a recent report from credit monitoring agency TransUnion.

Excluding mortgages, the average debt for a Canadian consumer was $21,028 in the second quarter of 2015, compared to $20,880 in the same period last year, the report found.

But debt payments overdue by 90 days are in decline by four per cent, and Canadians are paying down much more of their lines of credit and loans.

"Delinquency rates of all credit products are relatively low, but even so we have observed a pronounced improvement in some of the most popular credit products such as lines of credit," Jason Wang, TransUnion's director of research and industry analysis, said in a news release.

"This is a positive sign that Canadians are both increasingly aware of the importance of making payments on time, and have the capacity to do so."

Canadians save for a rainy day 

Canadians slowed their pace of borrowing and increased their savings in 2014, putting many people in a good position to deal with this year's struggling economy, according to the 2015 WealthScapes analysis, released Wednesday by Environics Analytics.

Household net worth last year  increased 6.1 per cent over the previous year, despite a 2.9 per cent growth in debt, the report found. Nationwide, liquid assets — defined as the sum of savings and investments — were up 5.5 percent in 2014.

"Many people have become fixated on the risks of debt," Peter Miron, senior research associate at Environics Analytics and lead developer of WealthScapes 2015, said in a press release.  "But Canadian balance sheets are in very good shape — even better than prior to the financial crisis."


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