Editorial: Debt, disease and disturbing downturns


Canada can expect dire economic consequences when major debt exposure in this country meets global virus pandemonium.

Debt accumulation in Canada is not new. Persistently low interest rates, chronic government quantitative easing and a growing public aversion to money management basics are hollowing out the country’s long-term wealth.

As a recent Macdonald-Laurier Institute (MLI) commentary pointed out, the rapidly escalating debt load of Canadian households, businesses and governments has made all three disturbingly vulnerable to a global economic slowdown. The unexpected addition to that equation of a potential global pandemic – especially one originating in Canada’s second-
largest trading region – intensifies debt exposure concerns.

The MLI report’s author, Philip Cross, notes that Canada’s debt-to-GDP ratio now exceeds 300%.

Its economic growth, meanwhile, was a mediocre 0.3% in 2019’s third quarter and is not expected to improve much any time soon.

That alone is bleak news for the country’s economy. But the addition of what Moody’s Capital Markets Research chief economist John Lonski suggests could be even more of a “‘black swan’ than the global financial crisis and Great Recession of 2008-09” has the potential to quickly turn bleak to black.

Lonski points out in a recent market review that, unlike the U.S. mortgage meltdown that triggered the Great Recession, no one predicted the coronavirus outbreak or its global pandemic potential. Doubt has consequently been cast upon predictions of global growth accelerating to 3.3% in 2020. The World Bank, prior to the outbreak of coronavirus pandemic fears, forecast growth among advanced economies to slip to a tepid 1.4% this year.

An economy that has been propped up by government intervention and spending by insolvent consumers has little long-term upside.

Canadian citizens and businesses are about to find out what a combination of deep debt and contagious disease fears mean for their futures.

It is not a pretty picture.