The Bank of Canada says the economy is navigating a “volatile” global environment and that “vulnerabilities” exist that could expose Canada to potential shocks on multiple fronts.
The central bank released its annual Financial Stability Report on Thursday, which gauges the resilience of the Canadian financial system and highlights key risks that could undermine that resilience. It was penned by Senior Deputy Governor Carolyn Rogers, along with Deputy Governor Toni Gravelle.
“Canada’s financial system has functioned well through a challenging year,” Rogers said in the report.
“However, vulnerabilities have increased in some parts of the system.
“The economic and geopolitical environment has become more volatile. And this has made it more likely that a new shock or a combination of shocks could cause several vulnerabilities to crystalize at once. If this were to happen, these vulnerabilities could interact and reinforce each other.”
This means that Canada’s economy could be exposed to damage if some of these risks escalate and become much more serious.
Among the main risks outlined in the report is global uncertainty stemming from the war in the Middle East.
The conflict, which began in February when the U.S. and Israel launched joint attacks on Iran, has jeopardized the world’s supply of oil, natural gas, fertilizer and other products.
The Iran war, the bank says, “has added to global uncertainty, leading to volatility in some markets.”
Last year’s report was heavily focused on risks stemming from the trade war and U.S. tariffs, and Rogers says those risks remain as Canada and the U.S. intensify talks towards the review of CUSMA.
Rogers also cautions about new threats emerging from artificial intelligence (AI).
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“AI is expected to boost productivity and economic growth over time, but it is sparking concerns about disruption in some sectors and about overinvestment,” she said.
“AI may also increase the speed, scale and sophistication of cyber attacks.”
Gravelle then noted high household debt levels in Canada, and said this leaves many Canadians vulnerable to potential economic shocks.
“Canadians continue to carry high levels of debt relative to their income, but overall household wealth has risen,” Gravelle said.
“This overall picture masks important differences.
“Some households face far greater strain than others, and those with the highest debt burden have very little financial flexibility to cope with a job loss or an unexpected expense.
“The main concern for both households and businesses is a geopolitical or economic shock that leads to a deep recession and a sharp rise in unemployment.”
Rogers and Gravelle spoke to the media on Thursday following the release of the Financial Stability Report.
Rogers acknowledged the data that the Bank analyzes does not always reveal the nuances of Canada’s economy, including how small businesses and struggling households are handling their finances.
This, she explains, is because most of the data that ends up being analyzed factors in the overall performance, and a growing wealth divide between higher and lower incomes may not be seen as clearly as a result.
For example higher revenue corporate businesses may be better able to pay down commercial mortgages, and that may overshadow lower revenue small businesses that are insolvent from falling behind on payments.
“At a business level, the data that we have in our financial stability report is really more at a corporate level. It’s harder for us to get data in the small business sector,” she said.
“But, I think we’re conscious that there are things that the data doesn’t measure well.”
Rogers said a similar result can be seen among households, where there is “inequality” as a result of the growing divide in wealth.
This is because higher incomes may be better able to pay off mortgages than those with lower incomes, and this leads to an overall clouded picture.
“The gains that have helped households, the gains that we talked about that helped us through the mortgage renewals, income increases, increases in household wealth that we talk about in the report, those aren’t spread equally across households, of course — so there is some inequality there,” she said.
“There is no doubt still some households where those gains have either not occurred or not occurred to a level that are helping them deal with the higher cost of living. So there’s still going to be some stress there.“
Rogers added that regardless of what the data shows, it doesn’t clearly measure how Canadians “feel” about their finances and the economic outlook.
“It can be true that the data looks better and people still feel stressed. Canadians have gone through a lot of economic and financial stress over the last years,” she said.
My gripe today is ALL the people POLITICIANS who WE GIVE POWER TO every election say WE ALL HAVE TO FINANCIALLY SUPPORT so this federal government continues to TAX US TO DEATH to do it. ALL MULTIMILLION DOLLAR ATHLETES, ACTORS AND MEDIA, people on WELFARE AND AISH in Alberta, ALL the olympic athletes who collect monthly “welfare” money for 4 years so they can get in shape for the next olympics etc.etc. I am BROKE. “Federal Tax Dollars: Through the federal government and Sport Canada, the Athlete Assistance Program (AAP) provides direct living and training allowances to select national team athletes. This “carding” system provides monthly stipends, such as $2,175 per month for senior athletes and $1,300 for developing athletes. Sport Canada also provides roughly $66 million annually to Own the Podium, which funds specific sports and athletes projected to win medals.”
Maybe stop feeding the Feds so much newly printed money there Tiff, youre a drug dealer with the Feds hooked on your supply. You cause inflation Tiff.
Heard enough, send another billion to Ukraine
Gee ya dont say hey Tiff!? But still pounding the tariff drum hey. Just cant say what the real reason is. Starts with an L. Ends with Carney.
Don’t be so quick to blame the war or tariffs. Our own leadership has way more responsibility as to why we are in this position. Most important facts are hidden or just not reported.
This was happening before the last guy, elbows up Canada
THESE FOOLS DESERVE IT !!! ALWAYS SPENDING, MORE THAN EARNING !!! THIS IS WHAT K I D S DO, NO THOUGHT PROCESS IN PEOPLE TODAY WHATSOEVER !!!
You don’t say!
The greatest shock to Canadian household budgets was the election of yet another disaster of a Carney led Liberal government.
its the liberal government destroying Canada making it hard for Canadian born people , so why in the f would you want to be elbows up??????
Gotta fund gender-sensitive farming operations overseas
You’re not to swift eh capt obvious?
Send for more Indians…that always helps.
Its all good
Just buy less coffee this week
Lmao
Don’t blame everything on the war in middle East. This “instability” started the day Liberals took over 10+ years ago.
Our taxes should be kept in Canada, not pay for other nations wars, etc.
Aint communism great
Elbows up suckers
Who coukd have seen this coming??? Harper predicted all of it nearly 12 years ago if we elected Trudeau, and the mouth breathers out east didnt didnt care.
the never ending tax increases, mass immigration, food costs, housing, etc, etc, a complete failure of the liberal government
After 11 years of the LPC implementing tax, after tax, after tax, eastern Canada will still re-elect them. Alberta strong & free!