As if we needed another reminder.
A new study from the Bank of Canada neatly captures the underwhelming nature of business leader sentiment across the country. Executives told researchers conducting the fall 2012 Business Outlook Survey that they expect sales to increase, business investment to rise and jobs to be added. They just don’t think the numbers will be as strong as they did when asked the same questions for the summer 2012 survey.
If that sounds familiar, it’s because we saw a similar dip in optimism this time last year. What is clearer now than ever before is that the global economy is in the midst of a massive deleveraging process that is dampening both consumer and business spending.
In remarks delivered to the Vancouver Island Economic Alliance on Monday, Bank of Canada Governor Mark Carney described “a synchronous slowdown under way in the global economy.”
The effect on Canada is potentially severe. A few specifics from the new Business Outlook Survey:
- Executives predict their sales will rise at about the same pace they did last year. Respondents most exposed to the global economy offered the least-optimistic forecasts.
- Optimism about increased business spending is down relative to the summertime survey. A number of large companies reported that they’d just finished major projects. In those cases, the money’s been spent.
- The employment picture will improve, but in every Canadian region business leaders lowered their expectations in comparison to the last study. Tellingly, some reported that projects they’d recently implemented made them more productive, thus lowering their need for additional people. Others are simply aiming to manage costs.
- Almost no-one predicted that consumer price index inflation would move outside the Bank of Canada’s target range of 1% to 3%.
To complicate matters further, Canadians are leveraged higher than ever before. Revised numbers released by Statistics Canada this week show that our debt-to-income ratio hit 163.4% in the second quarter. That number compares unfavourably to debt levels recorded in the U.S. before its housing crash.
But with slow economic growth ahead, and virtually no inflationary pressure anticipated, will the Bank of Canada raise its overnight rate in a bid to tamp down consumer debt? While the consensus among economists is that we won’t see a move until the second half of 2013, Carney made clear in his speech on Monday that a rate hike for that reason is not out of the question.
For me, this all points to the value of a cautious approach to my family’s finances and (forgive me for sounding like a broken record on this) continued reliance on professional advice. Last week, I was out to dinner with a friend who asked me why, given the ultra-low interest rates available, Canadians shouldn’t be borrowing instead of saving. I think that’s a reasonable conclusion to come to, I told him, but only if you can afford to live with the debt.
For most of us, low interest rates provide an opportunity to pay down as much principal as possible. The less you owe when rates go back up, the better.
When was the last time you reviewed your personal economic plan?
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