There’s no denying the economy has slowed down. Numerous reports in the past few weeks have shown this to be true, and the housing market is fueling the slump. Now Capital Economics, a large forecasting firm, has warned Canadians to “brace for tough economic times ahead.”
But why is the housing market to blame? Housing and construction are two of the main drivers of the economy, along with the manufacturing industry and the export market. A healthy housing market translates into more consumer purchasing, which creates a robust retail market.
Think about it – you buy a new house, move in, look around and realize you need some new furniture, maybe some new appliances, definitely some redecorating. And that backyard needs some landscaping, planters and flowers.
All this translates into jobs in construction, which are high paid. So when construction activity is high, more Canadians are working and spending.
So the housing market is down, but so is the manufacturing and export market. Manufacturing sales fell in 16 of 21 industries, representing 82 per cent of the manufacturing sector. The export market slipped too and Canada’s trade deficit widened to $1 billion in February.
Given these less-than-promising stats, Capital Economics predicts a mere 1.3 per cent growth rate – far below what others are suggesting.
So what does all this doom and gloom mean for you?
Well, people who are looking at buying their first home will likely wait it out because the bad news is making a lot of people cautious, but in actuality it’s a good time to buy because of low interest rates. But because more people are holding back from buying, new houses aren’t being built and those who have homes are delaying buying up. The result is fewer quality properties for sale and higher prices.
Let’s take a look at interest rates. A sluggish economy means low interest rates. So if you have a line of credit, or are considering a loan or an auto loan, your payments will be relatively low. The other side of that coin is that savings accounts and other investments are not earning a lot. Be cautious if you play the stock market, which is vulnerable to any bad news.
For most Canadians, life won’t change much. However, if you are in the housing, manufacturing or retail industries, you might be vulnerable to lay-offs.
The real danger, which the Capital Economics report is alluding to, is that a long and protracted period of little or no growth leads to depression. Remember the pictures from the 1920s where people lined up at soup kitchens – that’s a depression. Fortunately the Canadian government has enough money to stimulate the economy before times get worse.
How long will it take to get out of this slump?
That’s like asking “when will I win the lottery?” No one really knows, but here’s what we do know. Housing has cooled and will likely stay that way until the end of 2013 and into the beginning of 2014. Economic recovery is dependent on the U.S. and European economies and there are a few bright lights in those economies – just a few, though. But turning the economy around is like waiting for your nails to dry without a speed-dry topcoat – it will take until 2014 before you’re able to leave the house.