Bank of Canada governor Mark Carney says that Canada's economy is in transition to less dependence on housing. Exports are expected to take up the slack as demand for Canadian material increases globally.
The Canadian housing market has been in decline ever since Canada's Finance Minister Jim Flaherty tiightened borrowing regulations dampening demand somewhat. Yet prices have remained relatively high and have not fallen to the degree that sales and housing starts have.
Mark Carney claims that the Canadian economy depended too much on an over-heated housing market and is now transitioning to a somewhat subdued housing market but a more robust export market. Carney, along with many other commentators, is concerned about the debt level of Canadian consumers. The changes in lending provisions has helped to restrain consumers from taking on even more debt. Consumer debt in Canada is at record levels: Credit agency TransUnion says the average consumer’s total debt, not including their mortgage, rose to $27,485, a 5.9% increase from the $25,960 a year earlier. It was the largest percentage increase for a fourth quarter since 2009. Debt levels rose 2.7% in the fourth quarter of 2012 from the third quarter.
Carney claimed that the Canadian housing market likely will take another couple of years to adjust, but he thinks that the slack will be taken up by increased exports and investment in other areas. Carney will be leaving his job at the Bank of Canada soon to become Governor or the Bank of England. on July 1 of this year. Carney said: "Real wealth is... gained through hard work, it's not through some magical asset inflation...I think what we've done successfully, time will tell, what we've done successfully is we've pivoted from stimulating household demand — housing market and household borrowing for consumption — kept employment up, and we've pivoted to focus on investment and exports.That's a difficult rebalancing, but what we're seeing without question is a very constructive evolution of Canadians' attitude towards debt and towards the housing market and it is moving towards a much more sustainable equilibrium."
Carney's hopeful outlook came only a day after an economic summit of the G20 nations in Moscow. A pledge was made by the countries not to use currency manipulation to gain trade advantages. Any move by other countries to do so could hurt Canada's exports.
Both Carney and Finance Minister Flaherty have been trying to dampen demand for housing so that prices will decrease or increase at a low rate. Carney and others worried about a housing bubble such as happened in the US. Carney claimed that housing prices had been increasing at an unhealthy and abnormal rate.
Economic forecasts for growth in Canada are quite modest. The Bank of Canada projects growth of just 2% this year but even that is too rosy according to some private analysts. The consensus prediction is at 1.8% and there are some who see just 1% growth this year.
In December of 2012 manufacturing experienced a 3.1% contraction. Exports declined during the same month. Doug Porter, an economist from the Bank of Montreal was less optimistic than Carney about investment and exports:"Suffice it to say, the jury is very much out on whether we have in fact pivoted to exports and investment. In this environment, it seems the risks to growth are almost uniformly on the downside for 2013, unfortunately."
There are signs, however, that the US economy is growing, particularly in consumer spending and housing and this should stimulate Canadian exports. After slowing in the last half of 2012 emerging market countries such as China and Brazil are starting to stabilize or even grow faster.