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In light of the extreme weakness in commodity prices, Canadians view the significant job losses in resource sectors with empathy, but not surprise. Job losses in finance, however, would be another matter entirely, but according to one major global investment bank, employment in finance-related industries is set to fall significantly.

David Doyle, a Toronto-based economist for Australian investment bank Macquarie, outlines a dire forecast for the domestic economy in his most recent presentation, Woe is Canada and the Landmine Loonie. The presentation forecasts a 59-cent (U.S.) loonie, 2016 gross domestic product growth of 1.5 per cent – a full percentage point below the Bank of Canada's estimate – and consumer demand well below consensus at an anemic 0.1 per cent.

The most surprising element of Mr. Doyle's rationale involves the Canadian economy's overreliance on finance. He notes that since 2001, the number of jobs in Canadian finance has increased by 25 per cent. In the United States, finance employment has only increased by about 2.5 per cent for the same period.

The implosion of the U.S. housing market, of course, explains much of the lack of job growth in U.S. financial services relative to Canada. This does not mean, however, that U.S. data are completely inapplicable to Canadians – the elevated housing prices and high household-debt levels domestically have clear similarities to the U.S. environment in 2007 (although thankfully, the financial derivatives that almost killed the U.S. banking system are far less prevalent here).

The accompanying chart attempts to estimate potential job losses in domestic financial employment. Using Statistics Canada data, the chart depicts the number of Canadians working in finance as a percentage of the country's total employment. Currently, there about 670,000 financial-services employees, which make up 3.72 per cent of the Canadian work force.

The trendline on the chart indicates that employment in finance is higher than the longer-term trend since 1987 would predict. The trend suggests that finance should be about 3.5 per cent of the total instead of 3.7 per cent.

A difference of 0.2 of a percentage point doesn't sound that significant, but in this case a return to trend would represent 40,000 job cuts in financial services – from 670,000 now to 630,000. (Statscan estimates the labour force at 18 million).

Ugly as they seem, these numbers are not a worst-case scenario. They assume that the uptrend in financial services as a percentage of the total labour force continues higher as it has for the past 30 years. This is not a foregone conclusion. The potential for the famously indebted Canadian households to begin a deleveraging process – where credit growth stalls or reverses as Canadians pay down debt – is rising, and this would limit business activity for financial services.

Importantly, the domestic financial services industry remains the envy of much of the world. The major domestic banks and insurers play a central and highly profitable role in the economy and it's possible that their growth could mitigate the employment losses suggested by our charts. Mr. Doyle's analysis, however, is definitely worth consideration in light of the considerable hurdles the Canadian economy faces in the months ahead.

Follow Scott Barlow on Twitter @SBarlow_ROB.

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