Canada faces a decent chance of falling into recession, warns Montreal-based BCA Research.
The independent investor research firm singles out both Canada and Australia as likely heading toward recession, in a report published Wednesday.
Both countries, the report states, “face the grim fallout from the simultaneous end of the commodity supercycle and their own debt supercycles.”
Factors such as weaker currencies, favourable demographics, and strong banking systems “will soften the blow”, yet the report concludes “a recession in both economies is now more likely than not.”
The deleveraging process has barely begun in Canada and Australia, the report notes, and “the mere stabilization in the ratio of private sector non-financial credit-to-GDP would imply a highly negative credit impulse in both countries.”
“To make matters worse, not only do Canada and Australia face the end of their own respective debt supercycles,” the report states, “but they must also reckon with the fallout from the end of the commodity supercycle.”
Against that outlook, “investors should underweight Canadian and Aussie equities,” the report advises, “and position for possible further policy easing from both the Bank of Canada and the Reserve Bank of Australia.”