Canada and Australia both face the grim fallout from the simultaneous end of the commodity supercycle and their own debt supercycles.
Unlike most other advanced economies, the deleveraging process has barely begun in Canada and Australia. The mere stabilization in the ratio of private sector nonfinancial credit-to-GDP would imply a highly negative credit impulse in both countries.
To make matters worse, not only do Canada and Australia face the end of their own respective debt supercycles, but they must also reckon with the fallout from the end of the commodity supercycle.
While cheaper currencies, favorable demographics, and strong banking systems will soften the blow, a recession in both economies is now more likely than not. Our Global Investment Strategy service advises that investors should underweight Canadian and Aussie equities and position for possible further policy easing from both the Bank of Canada and the Reserve Bank of Australia.