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I’m not sure if you’ve been paying attention but the Canadian economy has been making a ton of headlines. These stories have been so big that they are making the front pages of newspapers and leading newscasts on TV.

The average person probably doesn’t keep up with news in general but here’s a few things that have happened to the Canadian economy recently in plain English.

Interest rates

The Bank of Canada (BoC) recently lowered the overnight lending rate to .75% from 1%. This news was significant because it came out of nowhere. No one was expecting a rate cut. For the last few months the BoC was warning about an increase in rates so when this cut came, it shocked everyone.

The BoC basically admitted that the Canadian economy is crap and it needs to be stimulated. By lowering interest rates, borrowing money becomes cheaper; in theory, the more we borrow the more we’ll spend. Sounds great but when you consider how much debt Canadians currently have maybe we should take this time to pay down our debt as Rob Carrick of The Globe and Mail suggests.

Dollar down

To simplify things, the Canadian dollar dropped in value because investors want a higher return. Why hold onto our Canadian bonds when we can get a higher return on U.S. bonds? So as demand for the Canadian dollar decreases, there’s an increase in the U.S. Dollar.

I’m not suggesting we bail on our investment strategy, I’m simply explaining what happened. What’s worth noting is that the Euro has also devalued quite a bit as of late. So although the Canadian dollar is weak against the U.S., there’s some great value if you’re planning a trip to Europe.

Job losses

You know Canada isn’t doing well when you’ve got retailers like Target and Sony pulling out of the market completely. Their business practices may have been dodgy at best but the point is, there will be massive job losses. Target alone is cutting more than 17,000 jobs and don’t forget that Sears has already made cuts.

Come 2016 there will be a few new players entering Canada including Nordstrom’s and my personal favourite Uniqlo, but right now the economy is hurting. It’s a tough time for job hunters.

Real estate

In theory, interest rates on mortgages will drop but lenders don’t need to follow the BoC. As of this writing, none of the big banks have lowered their rates. Royal Bank did shave 10 basis points off their 5-year fixed rates, bringing it down to 2.84%, but that was based on bond rates.

Even if lenders do decide to lower their rates, I would expect to see real estate prices continue to increase as Canadians pick up more debt. Don’t forget the Bank of Canada has already warned that house prices are overvalued by up to 30%.

Oil prices

Lower gas prices is great news for everyone, right? Not exactly, Canada is an exporting country; the lower oil prices hurt the Canadian economy. Jobs in Alberta are being cut; home listings have skyrocketed, while sales have dropped. Things could get ugly fast in Cowtown.

Also note that the province calculated its budget when the cost of oil was much higher. Their revenue has dropped 40% and there have already been rumours of tax increases.

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About Barry Choi

Barry Choi is a Toronto-based personal finance and travel expert who frequently makes media appearances. His blog Money We Have is one of Canada’s most trusted sources when it comes to money and travel. You can find him on Twitter:@barrychoi

10 Comments

  1. Avatar Emily @ Simple Cheap Mom on January 27, 2015 at 8:28 AM

    It’s too bad I don’t have a trip to Europe planned! On the flip side, I forgot we’re getting Uniqlo,. I’ve been told to be excited about that. 2015 Is definitely going to be an intersting year to see how we can adjust to lower oil/gas prices.

    • Avatar Barry Choi on January 27, 2015 at 9:12 AM

      Emily,

      The majority of my clothes is from Uniqlo. Whenever I travel or someone I know travels to a destination with Uniqlo I make sure to get some stuff. The government is going to need to get creative now that a major income source has dropped but for the average consumer I would expect them to just spend the difference.

  2. Avatar Potbelly on January 27, 2015 at 4:05 PM

    Let’s hope Uniqlo does well here.

    It’s disheartening when Canada depends so much on exporting commodities like oil. Harper has neglected to invest in local industries that actually add value like manufacturing and R&D.

    House prices are way over valued but people won’t learn until the market drops. The BoC is being irresponsible by telling people houses are over valued and then turning around and dropping rates.

    • Avatar Barry Choi on January 27, 2015 at 4:13 PM

      Potbelly,

      Yes it was pretty stupid for BoC to warn about real estate and then lower rates. They know perfectly well that it’ll just fuel the fire.

  3. Avatar Daniel @ SaveWithDan on January 27, 2015 at 5:43 PM

    Thanks for explaining this all this simple, Barry.
    And thanks for letting me know Uniqlo is coming!

    • Avatar Barry Choi on January 27, 2015 at 6:18 PM

      Daniel,

      My shopping ban ends when they arrive. Maybe they should come early, that would stimulate the economy.

  4. Avatar UnusedPhD on January 28, 2015 at 10:25 AM

    I am pretty sure Target job cuts is around 17,000 and not 37,000.

    • Avatar Barry Choi on January 28, 2015 at 10:26 AM

      UnusedPHD,

      Ooops, you’re right. Fat fingers on my end. Fixing it now

  5. Avatar Virna on January 28, 2015 at 5:30 PM

    Yay for Uniqlo! I hope it does well in Canada. I heard we now have a Muji downtown too – also a fave of mine.

    • Avatar Barry Choi on January 28, 2015 at 6:10 PM

      Virna,

      Hopefully they learn from Muji and have plenty of stock. Muji was out of a ton of stuff within a week.

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