The CEO Poll: Credit risk

Don't expect the economy to recover just yet: Canadian CEOs.

Business leaders give the federal mini-budget high marks.

The Bank of Canada released economic data for the fourth quarter of 2008 recently, and the picture was grim. The first half of this year will likely be the same — or even worse — according to a group of Canadian CEOs polled recently by COMPAS Inc.

The central bank reported that household debt reached a record high of 140% of disposable income in the fourth quarter, and it is becoming the greatest risk to the country’s economy. Nearly 45% of the respondents in the COMPAS survey believe the debt-to-income ratio will be roughly the same in the first half of 2009, while 42% said it will be even higher.

Personal bankruptcies also reached a 10-year high in the fourth quarter. More than half of the 127 respondents believe more citizens will plunge into bankruptcy this year, and 62% believe the number of mortgage loans and credit cards in arrears will also rise. Most of the respondents believe the number of loans in arrears and the debt-to-income ratio are the most important indicators of where the economy is headed.

“The first hit to the economy was the credit crunch caused by the mortgage problems. The next hit will be the credit card crunch,” wrote one business leader.

“The good news is I don’t think the economy is going to get worse,” wrote another CEO. “The bad news is I can’t see it getting any better for a while.”

At least one bit of good news in the COMPAS report is that the CEOs are slightly upbeat about the housing market. The Canadian Real Estate Association reported recently the national resale housing market returned to pre-recession levels last month. Only 21% of the respondents believe sales in six months will be lower than a year early earlier. Nearly a third believe sales will in fact be higher.

“Based on current economic reporting, it appears our deep trough is going to be followed by a soft landing,” according to one CEO. “Or let’s hope so.”