Pattie Lovett-Reid: How to weather an economic soft patch
As universally expected, the Bank of Canada held interest rates at 1.75 per cent on Wednesday. After five increases since mid-2017, the moves that were supposed to be insurance policies to slow down a heated economy may have translated into a drag on the economy instead.
There are more signs suggesting our economy hit a soft patch in the fourth quarter. For one, consumer bankruptcies are on the rise. According to Equifax’s latest data, bankruptcies climbed 15 per cent in the second half of 2018. Meanwhile, company insolvencies increased 10 per cent year-over-year in January, according to the Canadian Association of Insolvency and Restructuring Professionals.
Add to this the mortgage stress test – aimed at slowing down the real estate market – which has clearly affected Toronto and Vancouver where the once red-hot housing markets are now turning into buyers’ markets.
In fact, there are many reasons things could get worse before they get better here. Weaker exports, slowing job growth, tighter lending conditions, rising rates and high levels of debt don’t combine to paint a rosy picture of the Canadian economy.
And if that isn’t enough, the loonie is now hitting levels last seen in January 2019 – lagging most G-10 peers and leaving some to wonder if the Bank of Canada’s next move will actually be a rate cut.
A rate pause or even a rate cut would obviously pose a good-news-bad-news scenario. In a perfect world our economy would be firing on all cylinders, debt would be under control, our real estate market would be balanced and the economy would be growing. However, if that isn’t the case and Canadians cut a break with rates remaining low for an extended period, will we take it seriously and clean up our personal balance sheets once and for all?
You can be sure corporate Canada is thinking of ways to get through this soft patch. So, it might be helpful to think of yourself as a corporation, too.
My advice: Improve your liquidity, reduce debt and provide some financial flexibility for yourself to meet obligations. Take the right actions so that you can weather any potential economic shock and unexpected expenses that may come your way.