The Bankwatch

Tracking the consumer evolution of financial services

Ontario Canada is becoming the new California, and not in a good way

Canada continues to be held in high regard throughout the ongoing crisis but the devil lies in the details.  Ontario which represents about 40% of Canadian GDP is beginning to look like Nero … fiddling while Rome burns. 

Even at the Canada level the savings rate is going in the opposite direction of western economies, and adding to debt, ie not saving.  This perplexing environment is hard for Canadian Banks to formulate a credible strategy around.

The Boeckh Investment Letter

While Canada has deservedly had a good ride in recent years particularly through the global recession, due to strong Federal Government finances and a strong balance sheet, all is not quite as rosy as meets the eye. Chart 16 shows that, while the U.S. savings rate has gone from 2% to 6.5% since 2007, the Canadian savings rate, after a brief rally, has collapsed to about 2 1/2%.

Canadian households have continued to add to their debt, oblivious to the changed world environment. House prices rose to new highs during the recovery, while U.S. house prices are down over 30% from their peak.  Moreover, while federal debt levels and trends are good by world standards, provincial debts are disastrous. There is even some talk of Ontario going the way of California. Its per capita public debt is ten times that of California whose bonds are rated slightly less risky than Croatia’s.

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Written by Colin Henderson

August 27, 2010 at 17:27

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