In a recent press conference regarding fiscal policy, the Finance Minister, Bill Morneau, boldly assured Canadians that the economy is doing well and growing as expected. He did mention.." but with challenges", however, failed to elaborate on what those were.
Regardless, events that have unfolded and continue to unfold have cast doubt about his statement specifically with respect to employment, insolvencies, personal debt ratios and inflation.
In October, insolvencies and bankruptcies were up 13.4% from the same month the prior year, and according to the Office of the Superintendent of Bankruptcy, 13,200 people either declared bankruptcy or sought help to rearrange their financial payments in a way that helped with affordability.
What's different about October is despite people still being employed, wages were not enough to service the debt they had, which compelled thousands to consult Bankruptcy Trustees. Usually, insolvencies relate to a higher unemployment rate, not just the debt levels.
Therefore, current bankruptcy statistics may indicate two detriments impacting the economy:
1. Low wage growth; and
2. The rising household debt levels that are drastically outpacing low wage growth.
Unfortunately, the Finance Minister's public address did not speak to debt, which is one of the most considerable financial risks facing every single Canadian at this time. Instead, the Government admitted its plan to increase the deficit to $27B, meaning it will also be borrowing to keep the economy afloat amid a sluggish economic climate.
As Canadians, we should be concerned about the rise in insolvencies but also the rise of inflation. Just today, Bloomberg released the news that Canada's inflation has hit the highest level since 2009. The price index was up 2.2% compared to 1.9% in October.
Inflation means costs are rising. When we consider rising debt levels and the rate of insolvencies, is it likely consumers can afford an increase in living costs? Probably not.
According to Stats Can, on an annual basis, energy rose 1.5%, fresh or frozen beef rose 6.2%, mortgage interest rates also rose, along with the costs of transportation.
In the last Bank of Canada meeting, while many countries cut their overnight lending rate due to an uncertain global economy, BOC held its rate, which now seems justified. However, according to Michael Babad of the Globe and Mail, it must be careful about raising interest rates too fast since increasing rates with increasing costs will likely translate into a financial disaster for Canadians.
According to a survey "the proportion of Canadians who are $200 or less away from financial insolvency at month-end has jumped a significant six points since September, from 40 percent to 46 percent."
With the rise of inflation, the increase in debt levels, the possible rise in mortgage interest rates and the apparent low wage growth, is the economy actually doing well?
In November, Canada also shed 71,200 jobs in the private sector and according to the former Minister of Employment, Pierre Poilievre, Canada also faces imminent risk of companies leaving to go to the US where they won't get charged for carbon.
Do we need to rethink whether or not the economy is in good shape or whether it's headed for something much more concerning? Apparently we do.
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By: Sarah Colucci
Senior Mortgage Agent, Lic. M14000929