Biggest Economic Risks For 2014

Persistent Weakness In The Global Economy
Uncertainty about the future of the European Union, the housing market on that continent and the risk of slowdown in Asian economies like Japan and China continue to hang over the global economy. This could depress demand for Canadian exports, potentially causing more damage to the country’s fragile manufacturing sector and Canada’s overall gross domestic product.


Political Gridlock In The U.S.
A recently-signed budget deal could be a sign the brinksmanship that caused economic fretting all over the world, including in Canada, is behind us. But given the shape of this U.S. Congress, the recent agreement is no guarantee of future co-operation. The shaky peace in Washington could become increasingly fragile in as campaigning ramps up for the upcoming mid-term elections.


U.S. Tapering May Not Go As Planned
Federal Reserve Chairman Ben Bernanke, soon to be replaced by Janet Yellen, announced the U.S.’s central bank will soon start to pare down quantitative easing, its monthly bond-buying program that has helped to bolster equity markets and consumer confidence during a particularly tumultuous time. Bernanke feels the economy is in good enough shape to step away from that policy, but only time will tell if the exit is premature, and threatens the recovery.


Falling Consumer Confidence
Consumer confidence closed the year on a sour note amid a third straight month of decline. The Conference Board of Canada’s index suggested Canadians were wary about their finances and job creation, and a majority said it was a bad time to make a major purchase. If the trend keeps up in the new year, it could be bad news for retail activity, and therefore the economy.


The Domestic Housing Market
A risky condo market, overbuilding, ever-decreasing affordability and runaway real estate sales that continue to defy expectations seem like a recipe for a crash. So far the bears have been wrong, and home prices have continued to rise. But that means Canada is now at or near the top of indices of the most inflated housing markets in the world. And that means the risk of a housing bubble bursting is not yet behind us.


Commodity Price Slide
Canadian oil is trading at a deep discount compared to oil from the U.S. and around the world; gold and other metals have seen their valuations fall over the past year and could continue to do so if demand remains tepid. That's a big risk for the commodity-driven Toronto Stock Exchange and our resource-reliant economy.


Consumer Debt
Canadian household debt grew to a new record of 163.7 per cent of income, meaning for every dollar earned, Canadian families owe $1.64. That means we haven't been heeding warnings from top officials to reign in spending and pay down debts while interest rates are still low.


Sharp Increase In Interest Rates
A rosier economic picture might be enough to convince Bank of Canada governor Stephen Poloz to raise the interest rate for the first time in four years. If and when that happens, it will increase Canadians’ debt burdens and make repayment pricier, which could leave some debtors underwater.


Decline In Job Quality
Canada's economy managed to pump out jobs and push the unemployment rate below seven per cent in 2013, but the problem lies underneath those positive headlines. Many of the jobs created have been part-time and few have been going to young people in this slow-growing economy. Meanwhile, many labour critics are sounding the alarm about the increase of precarious work in the form of contract, temporary and part-time jobs. 2014 could become the year job security becomes a thing of the past.

Disinflation (Deflation?)
Global inflation in 2014 is expected to be the lowest since World War II and Canada's latest consumer price index showed prices in November were at the low end (1.1 per cent) of the Bank of Canada's acceptable range of between one and three per cent. The IMF has warned that Canada should factor deflation into its monetary policy. The lack of inflation can negatively affect wage growth and the power of a dollar for those looking to pay back debt.