A new analysis suggests that Canada is one of the top contenders to face a debt crisis and a recession within the next two or three years. This report comes after Prime Minister Justin Trudeau introduced a budget that comes with a $30 billion deficit. So both the consumer and government are broke.
According to Forbes magazine, Canada is one of seven countries “most vulnerable” to a debt crisis. The reason for this gloomy scenario is due to both the public and private sector. The government is taking on vast sums of debt in the next four years, while consumers have overextended themselves with mortgages and auto loans.
Overall, consumer spending has surpassed economic growth, and Canadians are borrowing all the time to maintain their spending habits. Eventually, a financial crisis will transpire and consumers will cease borrowing.
Canada joins China, Australia and Norway as nations facing a potential debt crisis.
But this warning of debt isn’t anything new. It’s been talked about by financial institutions, think tanks, economists and central banks all over the world. The statistic of debt accounting for $1.65 for every dollar of disposable income is also one that is terrifying Canadians. Of course, consumer debt has reached $1.6 trillion.
Once interest rates rise, household debt servicing payments will become stretched over the next five years. The Parliamentary Budget Office (PBO) projects that income Canadians spend covering debts will soar to just under 16 percent by 2020.
Simply put: once 2020 arrives, the debt buildup will cease and the economic impact will lead to financial reckoning from British Columbia to Prince Edward Island.
JRATT says
I just converted $7,200 in 25% to 27% floating interest, credit card debt to a 19.96% fixed interest rate loan. With lower monthly payment. Also, in 12 months, when my credit score improves I will look for a lower interest loan on the $5,000 balance. Many people are going to be surprised when CC interest rates increase over the next 3 to 5 years.