Eleven things that could ‘possibly go wrong’ for markets this year

These are stories Report on Business followed this week.

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I'm not saying that whatever can go wrong will go wrong.

Nor is Rob Carnell, ING's chief international economist.

But he did issue a report this week on "what could possibly go wrong" (assuming that "nothing goes right") for markets and the economy in 2015.

Then, using Mr. Carnell's idea and report as a base and as guidance, I went looking elsewhere to add to his thoughts and for other things that could rear their ugly heads.

"As usual, it is much easier (and surprisingly more fun) to come up with doomsday scenarios," the ING economist said in an engaging report, noting that a more optimistic picture has recently faded.

"It was beginning to look a bit too good to be true," he said in his report on things that could go awry.

"The Fed stopped QE without a re-run of the taper tantrum, the euro zone was to boost growth with its QE and forecasts for 2015 were generally positive," he added, referring to the bond-buying stimulus program known as quantitative easing, which the U.S. central bank has wound down and its European counterpart is expected to launch.

"That glowing outlook has tarnished in recent weeks."

Here, then, are things that could happen, based on the musings of Mr. Carnell and other observers. And in "no particular order of misery," as the ING economist put it:

1. Oil prices could crash further

And, indeed, some observers still expect them to tumble to the $40-a-barrel mark.

The collapse is supposed to be an overall good thing given the benefits to consumers, but all that extra cash might not translate to spending if it's temporary and thus may not offset the expected drop in production investment, said Mr. Carnell.

"There has been talk over the last 24 hours that $40 could be the absolute price floor for oil as all oil producers continue to lose money even with the price above $50 a barrel," analyst James Hughes of Alpari said on Thursday.

"However those eyeing a price floor at $40 are also concerned that any recovery from this level may not happen until the second half of the year."

2. The impact on Canada

Economists have different projections for how the oil rout will play out in Canada.

But just as an example, Emanuella Enenajor of Bank of America Merrill Lynch, in New York, noted this week that her group had assumed a drop of 20 per cent to the energy industry's capital spending in Canada this year.

But based on recent capital plans, she said in this week's BofA Merrill Lynch Global Research report, it could get worse. As such, a 30-per-cent pullback could shave 0.3 of a percentage point from her forecast for economic growth in Canada of 2.4 per cent.

Alberta has been Canada's jobs capital, and, said Ms. Enenajor, "a slowdown or decline in jobs there could imperil the overall pace of job growth in Canada."

3. The hit to governments

Then there are government finances, where lower oil is already taking a toll and sparking, for example, certain austerity measures in Alberta.

Here's the skinny from senior economist Robert Kavcic on the three oil provinces, assuming West Texas Intermediate, the U.S. crude benchmark, rebounds to about $60 a barrel: "Alberta is looking at a $5-billion to $7-billion revenue shortfall in fiscal 2015-2016 (more than 10 per cent of revenue), Saskatchewan is facing a gap of at least $500-million (roughly 4 per cent of revenue), while Newfoundland and Labrador has already revised its figures to show a near $1-billion deficit this year, now the deepest in Canada at 2.5 per cent of GDP."

Of course, that's based on $60 oil, and we're not back there yet.

4. Russia could sink from bad to worse

That's a potential trouble spot for Mr. Carnell. And others are worried, too.

There's sliding oil, the sinking ruble, Western sanctions and the Ukraine crisis to factor in. This year already promises an ugly recession.

Indeed, Russia's troubles could heighten market volatility, noted Craig Alexander, Andrew Labelle and Diarra Sourang of Toronto-Dominion Bank. In a new report, they said they don't expect a "broader" crisis, but "the lower oil prices go, the higher the risks become."

5. The fear elsewhere

"Contagion" from Russia already appears to be an issue in emerging markets, said Mr. Carnell.

Others agree there are big issues in some other emerging economies.

"Venezuela and several economies in West Africa, including Angola, are in trouble too," Capital Economics said in its recent outlook for emerging markets.

At this point, markets have general expectations about where economies are headed, and what central banks are doing or are likely to do.

But "any further divergence in economic and policy performances would risk another bout of destabilizing capital outflows, especially from many structurally weak emerging market economies, and an even stronger U.S. dollar," said deputy chief economist Aron Gampel of Bank of Nova Scotia.

6. OPEC is a 'busted flush'

And thus, the Middle East could face further destabilization, said Mr. Carnell.

"Middle Eastern budgets and political stability are dependent on revenues from oil and gas," he said.

"And though sovereign wealth funds can no doubt be tapped to some extent in some countries, not all OPEC members have this luxury."

7. The stock market

Don't forget the stock market, where energy plays a big role in Canada.

A drop of 1 per cent in the S&P/TSX composite would cut household net worth by $4.5-billion, Ms. Enenajor said.

So "if Canadian equity prices fail to rebound from their current levels through 2015, the implied 2.4-per-cent year-over-year decline in the index would mark a $10-billion drop in net worth, all else constant."

That might not be so bad where spending's concerned, she said, given "this would only be a paper loss."

8. Currency woes

Currency depreciation could speed up in Europe and Japan, in turn sparking "substantial problems for neighbouring countries," said Mr. Carnell.

Then there's Canada, where the currency is fast approaching 84 cents U.S.

Whether you consider the weak Canadian dollar a good thing or a bad thing depends on where you sit, or where you're headed. So in the face of such uncertainty, things could get better or worse. The loonie lost 9 per cent last year, and Bank of Nova Scotia expects a further 3 per cent this year.

That's expected to be good for Canada's exporters, but not so good for some others.

"The outlook has deteriorated, in tandem with falling oil prices, with commodity prices remaining the key risk to our currency forecast," said chief currency strategist Camilla Sutton.

9. The Fed

The Fed's return to normal may well be "anything but normal," said Mr. Carnell.

And how that all plays out will affect the rest of the world.

For the record, deputy chief economist Michael Gregory of BMO Nesbitt Burns expects "the first tightening in June and a gradual quarter-per-quarter rate hike cadence for a year afterwards."

10. Greece

Need I say anything more?

This is another potential trouble spot for Mr. Carnell and several others.

"One way or another, Greece has to reach some kind of agreement with its European partners by this summer at the latest (it then has to repay two ECB-held bonds)," said senior currency strategist Elsa Lignos of Royal Bank of Canada.

"If it fails to do so, it will default."

The TD economists don't expect a new euro crisis, but "Greece is a case study in how fiscal austerity could trigger a backlash that could have long-lasting implications."

11. China: A 'global saviour' or an 'accident waiting to happen?'

That's the question posed by Mr. Carnell.

Economic growth has slowed, and this is expected to continue, with analysts expecting gross domestic product to expand by about 7 per cent this year, and slow further next year.

"Even with continuing public sector investment, ongoing support from consumer spending, and the significant benefits accruing to lower-priced oil imports, the softening in real estate activity alongside the ongoing efforts to rein in lending highlight the risk of even slower growth and reduced demand for commodities," said Scotiabank's Mr. Gampel.

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BAC-N	Bank of America Corp	-1.07%	37.91
BNS-N	Bank of Nova Scotia	-1.22%	46.23
BNS-T	Bank of Nova Scotia	-1.51%	63.15
CADUSD-FX	Canadian Dollar/U.S. Dollar	+0.01%	0.73228
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