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Canadian economy shows surprising strengths

For the past several years, this column has highlighted important trends that signal frothiness in Canada's housing sector. These range from long-term price increases, to a break from market patterns in other advanced economies and rising consumer debt. However, recent economic data is showing positive underlying strength.

For example, Canadian household net worth rose to a record $7.7 trillion in Q4 2013, up by 3.0 per cent. According to Laura Cooper, an economist with RBC Economics, that works out to an astounding $218,100 per person. (Cooper was unable to provide background on the distribution of those assets because the data is provided only in the aggregate.)

So while median levels are surely such lower (due to a concentration of wealth among the top 10 per cent of Canadians) the trend is clearly positive. Furthermore, while Canadians' debts are increasing, their ability to pay off those debts is rising too. As a result, the ratio of household debt-to-income fell from 164.2 to 164.0 per cent during the quarter, a trend Cooper expects to continue.

In December, the Canadian economy also grew faster than expected, at an annualized rate of 2.9 per cent, outpacing both the United States, where the economy increased by 2.4 per cent, and analysts' expectations (+2.5 per cent).

Cheaper dollar boosts exports
The drop in value of the loonie relative to the U.S. greenback could also prove positive. While a weaker currency makes Canada as a whole poorer (it raises the price we pay for of a range of things, from travelling abroad to buying imported goods), it has some surprising benefits.

The falling loonie makes Canadian goods more competitive in the U.S., our largest export market and this has major consequences: Last year, 19 per cent of Canada's gross domestic product came from goods shipments south of the border.

Douglas Porter, chief economist at BMO Capital Markets, says the loonie could fall even further due to downside risks, ranging from the Quebec election, to recent dovish statements by Bank of Canada Governor Stephen Poloz, as well as the resignation of Jim Flaherty as Canada's finance minister.

Continued downwards pressures on the loonie, coupled with the fact that the U.S. economy is growing steadily (albeit at a subpar level), should further boost Canadian exports and, thus, job creation.

The fall of the loonie may also influence Canadian house prices. The roughly 10 per cent fall in the dollar, compared to the greenback, has cut the relative cost of local residential real estate, compared to similarly priced properties south of the border. In short, the falling Canadian dollar could provide upwards support, by sparking interest among foreign buyers, a group that has been a major market driver in influential regions, such as Toronto and Vancouver.

Peter Diekmeyer is Bankrate.ca's economics columnist. He can be reached at peter@peterdiekmeyer.com

-- Posted March 31, 2014
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