09/08/2011 04:15 EDT | Updated 11/08/2011 05:12 EST

Canada's Economic Recovery Relies Too Much On Strained Consumers: Economist

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Consumer spending will be a crucial part of Canada's economic recovery, economists say, but with Canadians' debt levels already at record highs, that could be a dangerous proposition.

During a panel discussion in Toronto Thursday, Derek Burleton, deputy chief economist for TD Bank, outlined a kind of post-recession Catch-22 that could set the stage in Canada for a shaky recovery.

Against the backdrop of slower-than-expected export growth, the burden of lifting Canada's economy out of the black has now shifted to consumers, despite the fact that many households are already shouldering significant debt loads.

"We had been counting on exports to do more of the heavy lifting in the Canadian economic landscape, and it looks like the consumers are going to have to step up a bit more," he told the crowd gathered at the Economic Club of Canada event, which featured Canada's top bank economists. "[Interest] rates are lower than we thought, and that's going to spur more consumer spending. So I do worry about the imbalances forming."

Earlier this week, the Bank of Canada held its overnight interest rate at one per cent for the eighth consecutive time -- which is where it is expected to remain for some time to come, regardless of what that might mean for consumer debt levels.

"The Bank of Canada sets interest rates based on what it feels is best for the economy. They don't target a specific sector. They allow regulation to address specific imbalances," Burleton told The Huffington Post following the panel discussion, which was billed as an "Emergency Economic Outlook" at a time of "unprecedented worldwide economic turmoil."

Changes in regulation, such as the implementation of tighter mortgage rules, have in recent years prompted a cooling off of consumer borrowing. And as Craig Wright, chief economist for RBC Capital Markets, told the crowd, it's a tactic that policymakers may turn to again.

"Part of the run-up we saw in debt, largely driven by mortgage growth, was also alongside that easing up of some of that access to credit," he said. "So we may yet see another round of regulatory change in the mortgage market -- a shorter amortization period or increase [in] the amount required for mortgage insurance."

In the meantime, however, Burleton says consumers will have an impetus to spend, despite the fact that "wages have been growing very, very slowly."

"I do see a strong likelihood of a pause, and then consumers going on another mini spending spree in 2012," he told HuffPost.

He predicts the Canadian household income-to-debt ratio, which currently sits at 147 per cent, could surpass 150 per cent.

"The indebtedness of the household in a very low-wage environment, the attractiveness of borrowing is going to mean even higher indebtedness over the next year or two," he said. "There's long-term vulnerability in that."

Precisely what the risk is, however, remains to be seen. Global economic uncertainty, prompted primarily by the European sovereign debt crisis and instability south of the border, hung heavy over Thursday's discussion, as the economists attempted to gauge the likelihood of worst-case scenarios, ranging from another recession to the collapse of the Canadian housing market.

The prognosticators will get another indicator Friday morning, when Statistics Canada is set to release its monthly Labour Force Survey.

"The employment situation in Canada has been a pleasant surprise," said Wright. "We hope that trend continues with tomorrow's data, and that will provide consumers the wherewithal to spend and save a bit and reduce their debt load."