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In 2013, prepare for the worst and hope for the best

Crystal ball.

Evgeny Terentev/Photos.com

Economically, we're in a recovery that hasn't really felt like a recovery, to paraphrase my fellow CBC Bottom Line panelist Jim Stanford. I agree, and looking forward, I am more pessimistic than optimistic about the coming year.

So what's my over-arching advice for 2013? Pull back on those reins, just in case.

Most people will point out that if everyone cuts back on spending, that might in and of itself trigger an economic downturn. But did I mention I was pessimistic? Not everyone will follow that advice, so it's survival of the fittest, I say.

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Income is stagnant in Canada, yet a holiday spending survey conducted by the Bank of Montreal indicated that people were planning on spending an average of 15 per cent more this year on Christmas gifts. Both the flat income and rising expenditures are general trends and honestly, at this pace it's only a matter of time before housing and Christmas take up 100 per cent of our income.

But our domestic demons are only part of the story. We are mere days away from the supposed deadline to avert the fiscal cliff in the U.S. I say "supposed," because the Budget Control Act actually allows the U.S. government to retroactively make changes after the New Year. In fact, it might be this very provision that has commentators suggesting that the political brinksmanship should be renamed "blinksmanship." Except, it's not really a game of chicken when you know the consequences are not final.

Nonetheless, the situation looks pretty dire south of the border, and as they say, if the U.S. sneezes, we risk catching a cold. Europe isn't fairing too well either.

So both domestically and abroad, we have significant risk factors that could put Canada's weak recovery under pressure.

And so I will continue to urge those who care to listen to prepare for the worst and hope for the best. If you can put a lid on your lifestyle inflation and shore up your own personal balance sheets, you'll be better prepared if we do end up dipping into another recession.

How do you do that? It's the same advice as for governments, except it's easier for us to do as individuals. You need to sort out your budget. Make 2013 the year to do it.

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About the Author
Personal Finance columnist

Preet Banerjee is a consultant to the financial services industry. You can follow him on twitter at  @PreetBanerjee. You can find his conflict of interest disclosure on his website. More

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