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“In that 10-year period where the U.S. was on a diet, getting healthy, Canada was binge eating junk food, which is debt,” Mylonas said, adding a medical analogy. “Eventually you go to the doctor and the doctor says, ‘sorry, you gotta cut the junk food.’ That’s painful.”

Canada’s housing market is already showing early signs of fatigue, with home sales declining last year to the lowest since 2012, according to Canadian Real Estate Association. The number of consumers seeking debt relief jumped 5.1 per cent in November from a year earlier, the Ottawa-based Office of the Superintendent of Bankruptcy reported on Jan. 4.

“If debt to disposable income is going to go from 180 to 130, then the recovery is going to look a lot more like the U.S. one, so shallow and long,” said Mylonas.

No Recession

To be sure, most economists and the Bank of Canada aren’t calling for a recession any time soon. The chances of a recession over the next 12 months is about 20 per cent, according to a Bloomberg survey of 10 analysts released Jan. 11. Earlier this month, the central bank cut its 2019 growth forecast to 1.7 per cent, while raising its estimate for 2020 to 2.1 per cent. The chances of a U.S. recession is slightly higher, at 25 per cent, based on 49 estimates.

Investors certainly aren’t behaving as if a contraction is imminent. The Canadian dollar has gained the most among G-10 currencies this year, while the main equity gauge has jumped 7 per cent, the best start to a year since 1980.

Traders aren’t banking on an imminent hike by Poloz, who worked at BCA Research in the 1990s. Chances of an interest rate increase by May sit at about 30 per cent, according to trading on futures contracts.

“If the Bank of Canada is not raising in line with the Fed, the reason it’s not raising is probably rooted in bad news,” such as weak economic growth, said Mylonas. “If that’s the case, then my thesis for Canada will play out sooner than most think.”

With assistance from Erik Hertzberg and Kristine Owram

Bloomberg.com