Where in the developed world can you find residential real estate prices hitting new record highs right now? Welcome to Canada, where the average house cost C$320,000 in May, despite the psychological impact of the global recession - and where units in the gleaming apartment blocks round Vancouver’s charismatic harbour are selling well.
The Canadian national economy is a curious mix of the good and the worrying. In contrast to the real estate boomlet, credit crunch-shocked Canadians are hoarding a growing pile of cash. Individual cash holdings have risen by 26% since mid-2007, in contrast with the US where the growth has been only 10%. Unsurprisingly, retail sales are suffering, down just under 1% in April. Key indicators such as furniture and electronics were down for the ninth month in a row, now around 11% below summer 2008 levels.
Unfortunately, the vast majority (around 80%) of the cash holdings are being accumulated by the over-50s, who aren't Canada’s major spenders, and don't carry much debt. So the household debt problem is bubbling away dangerously under the surface of the statistics. Canadians avoided gorging on cheap mortgages and credit cards like their southern neighbours, but the difference is only of degree, not direction. Personal debt ratios to disposable income have risen by 50% since the early 1990s.
Vancouver hosts the Winter Olympics next year, which is another reason to question the longer-term realities of the present economic position. How busy will the souvenir shops in Gas Town be later in 2010, or the huge hotels currently now under construction? The busy sea-plane and whale-watching boat schedules will surely be cut, bringing blessed relief to anyone trying to have a lie-in at the hotels round picturesque Victoria harbour on Vancouver Island, no longer woken every five minutes by the noise pollution.
Other core sectors face serious problems. The Ottawa government is wrestling with the issues bedevilling the vital forestry industry, and has just announced a C$1bn aid package to counter what is seen is predatory isolationism by the USA.
Mining companies like Hudson Bay are cash-rich but growth-challenged, with two of its flagship mines due to run out of ore to extract in the next ten years. The answer is to supplement its traditional development projects in places such as Guatemala with acquisitions, a dangerous game in these uncertain times. In an indication of the global nature of business these days, India’s largest mining company, Vedanta, recently built up a near-10% stake in Hudson Bay.
Fortunately, the banking sector is healthy, its inherently conservative policies avoiding the mire of sub-prime and the toxic waste of those mythically AAA-rated collateralised debt obligation bundles.
This is a blessing, but not a solution to the many challenges ahead. Vancouver is already dealing with a growing vagrancy problem. How many more beggars will there be in times to come, harassing tourists and business visitors? The economic Mounties have much to do to preserve Canada’s prosperity.
This is the latest missive from the travels of our some-time correspondent Nick Hood, a partner at UK insolvency firm Begbies Traynor and executive chairman of Begbies Global Network.
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