Can Canada avoid the next recession?
Less talk and more action is required as economic woes spread.
It's really pretty basic: when you're feeling uncertain about your own finances and future, you're far less likely to loan money — or even your lawn mower — to your troubled neighbour.
That applies to individuals and, as the European Union is finding out, to nations as well.
Given the political and economic pressures in their own countries, it's no surprise that so many G20 members are proving reluctant to pony up for the $1.4 trillion European Financial Stability Facility. And it's true they don't have a whole lot of financial or political capital to spare — however worthy the cause may be.
The inevitable disarray that's setting in suggests that things in Europe are going to get a whole lot worse before they get better. Based on recent economic data, there's also growing evidence that Europe may have already entered a recession — a view that Canadian Finance Minister Jim Flaherty has already publicly voiced.
As all global neighbours do from a safe distance, we wish the Europeans the best in sorting out their many issues. But just beneath that veneer of good will lies the real issue: "What does your problem mean for us?"
With the United States already on the critical list and Europe in the intensive care unit, Canada has good reason to fear contagion.
The last time around — in 2008 — conditions were different and Canada breezed through relatively unscathed.
In fact, by early 2011, Canada was the only G7 country to have recouped its losses from the 2008-09 downturn (which, according to Statistics Canada, officially lasted from August 2008 to July of 2009).
The reasons for that vary, but include low interest rates and the way employers handled downsizing (a combination of layoffs and shorter work weeks). Combined, that meant that household spending — and credit — didn't collapse as it has in the past. Spending dropped by two per cent over two recessionary quarters compared with an average six per cent in past downturns.
But what about this time around? After all, everyone from Stephen Harper to top bank economists have been clearing their throats about what lies ahead for Canada.
Part of that concern is based on the economic floundering that continues to plague our largest trade partners. The U.S. Federal Reserve Board has just slashed its outlook for economic growth and has stopped publicly opposing the option of further government stimulus. It predicts the U.S. economy will expand by 1.7 per cent — nowhere near the amount required to reduce nine per cent unemployment.
That's down from a mid-year growth projection of about three per cent, because the central bank says it underestimated how tightly business and household wallets would close. And without that spending, the American economy remains stalled.
That's just part of the equation, however, when it comes to Canada's economic vulnerability.
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