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Canadian dollars (loonies) fall through the air in a photo illustration.


For years, chief risks to the Canadian economy have come from outside.

External threats persisted through the recent recession and the bumpy recovery, from the U.S. housing market meltdown and its financial crisis to Greek debt woes and the spectre of a euro zone recession.

Now, as the bombardment of bad news from abroad abates, the nature of risk is tilting.

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For the first time in ages, many of the looming risks are domestic.

Tally them up. Record high debt loads are making more households vulnerable to economic shifts, and could well put the squeeze on retail spending and retirement savings.

Austerity is looming at most levels of governments as they seek to balance the books.

Public-sector job cuts are on the way, a sector that has been the chief driver of employment growth in recent years. Construction won't be much of a boost to employment, either -- infrastructure spending is winding up and the Canadian housing market is expected to take a breather.

Employment levels haven't budged much in the past eight months, and economists don't see a spurt of job creation anytime soon.

"It's a fair assessment that the balance of risks are shifting more to the domestic side," says Derek Burleton, deputy chief economist at Toronto-Dominion Bank.

"The biggest worry is the imbalances in household finances that have been growing," he said. "There just doesn't appear to be any trigger in the near term that will lead to a reduction in those risks. If anything, we see the risks on that front increasing" as low interest rates fuel borrowing.

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It's not that global risks have evaporated. New ones seem to pop up just as older ones -- rapidly rising oil prices, for example, have resurfaced as a challenge to businesses and consumers alike.

The shift is evident in the Bank of Canada's most recent comments on the economy. "Heightened uncertainty around the global economic outlook has decreased in the weeks" as Europe stabilizes and the U.S. expands at a modest pace, it said in a March 8th release.

However, household debt remains "the biggest domestic risk" while exporters will see challenges stemming from the persistently high Canadian dollar, it said.

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