Europe debt crisis a high risk for Canada

Canada, 12th December: Canadian financial systems and the economy is at a great risk of being affected by recent Europe debt crisis.

This has been warned by the Bank of Canada. The BoC further states that already, Canada is facing severe effects of the debt crisis in Europe and Canadians are worried by the ability of such crisis in affecting their lives.

As per the semi-annual financial stability review released by the bank this Thursday, the risks have increased significantly in the period of last six months.

Trouble for Canadians with high houselhold debts—The report claimed Canadians with heavy household debts could be severely hit by the European debt crisis as it engulfs other nations as well rendering a big blow to the employment scenario globally. Global financial system has already been damaged severely by the ongoing European financial crisis, the statement maintained.

The result of this crisis will be felt in the form of increasing unemployment rates and slowdown in the economies the world over, even though the financial system of Canada does not have major exposure to the European debt, the statement further cautioned.

Canadian households will find it increasingly difficult to pay their debts as the rate of joblessness increases leading to reduction in aggregate growth of income, the bank said. This will give a big blow to the consumer confidence, net worth of Canadian households and Canadian housing market.

The ratio of household debt to income is going to increase calling for the need to immediate global efforts to restrict such debt crisis from spreading its wings to other nations.

Efforts to improve Canadian financial system—Meanwhile, continuous efforts are going on to help bring the much needed stability to the banking system of Canada, the Bank of Canada said.

This is being done through implementation of rules making it necessary for players to hold increased capital along with increased supervision.

Moreover, global regulators are being asked by the bank to chalk out ways to deal with the threat of failure of large banks in a bid to save the broader financial system.

The intensity of Europe debt crisis will weaken economic growth globally. A delicate global outlook risks increasing the likelihood of severe shocks to Canadian household incomes apart from impairing bank loan portfolios’ credit quality.