Now that a recession has been officially declared for Canada, concerns for the future are starting to be raised by the media and political commentators. Somewhat surprisingly, this concern does not seem to be shared by Canadians themselves, as BMO Financial Group found in a recent survey:
According to the Annual BMO Rainy Day Survey released today, Canadians have an average of $41,694 in emergency savings – up $6,457 from last year. However, one quarter (24 per cent) say they are living paycheque to paycheque with hardly anything set aside for a financial emergency.
The survey, conducted by Pollara, revealed that while the overall average has increased, over half (56 per cent) of Canadians say they have under $10,000 in available emergency funds:
- 44 per cent say they have under $5000 in emergency savings, with 21 per cent having less than $1000
- Three in ten (29 per cent) say their savings would only last one month or less
- One quarter say they have enough to last them over a year
Canadians classified medical expenses (72 per cent), job loss (71 per cent), major car repairs (61 per cent) and unexpected home repairs (59 per cent) as the top emergency concerns.
Many Canadians are counting on the equity in their homes as a hedge against a Canada recession. Institutional investors, on the other hand, are betting on a bubble, shorting companies associated that stand to lose from bubbles popping. The Globe and Mail reports:
Granted, Mr. Cohodes, 55, used to run one of the biggest U.S. hedge funds specializing in short selling. At its height, Copper River Management, previously called Rocker Partners, managed more than $1.5-billion in assets and did battle with companies like America Online, Krispy Kreme and online discount retailer Overstock.com. …
He insists he has no interest in betting broadly against the Canadian economy, or trying to short the big banks. “They’re well-run, they’re diversified and they’re too big to fail by the Canadian government,” he says.
Instead he is aiming his efforts at one company: Home Capital Group. The company, through its subsidiary Home Trust, has emerged as one of Canada’s largest alternative lenders, offering mortgages to borrowers who may have been turned down by major banks.
He’s far from the only one targeting them – Home Capital Group is currently the second-most shorted company in Canada. Motley Fool describes the potential ramifications of a housing market crash coupled with a Canada recession:
With Canada entering a technical recession this quarter due to massive layoffs and solvency issues with major oil and gas companies such as Encana Corporation and Enerplus Corp., it wouldn’t take too much to send the economy into free fall. Unfortunately, a pop in the housing bubble could do just that.
According to a report by the Canada Mortgage and Housing Corporation, part of Canada’s housing bubble might be about to burst. In a country that has a slowing economy, it believes a real estate crash could trigger an economic collapse. The report stated that the “rise in house prices have not been matched by growth in personal disposable income.”
When real estate corrects, there will be winners, and there will be losers. Most of Canada is presently unprepared to deal with the economic consequences of a recession. Hopefully, the lessons learned from the United States can help the government to mitigate the damage as much as possible.