The economic crisis profoundly impacts people’s lives in the country and often across the globe when recession remains global. Various factors contribute to bringing recession, and today we are going to unpack the role of two important factors: high cost & tight credit to cause a crisis in the economy of Canada through recession.
How Does High Cost Generate a Crisis in The Economy?
When high costs prevail among various sectors of the economy of Canada, it has contributed to the crisis by a slow decline in consumer purchasing power, narrowing profit margins of businesses, decline in investments, and impairing income equality. Let me elaborate on them further.
1. Diminished Consumer Purchasing Power:
Due to the high cost of consumer products, people can buy only a few products. It leads to contractions in the overall economy.
2. Narrowing Profit Margin:
High costs lead to rising expenditure on buying raw materials in the market. Businesses also face high labor and energy costs that result in low production. Companies need to compromise with low profit margins.
3. Decline in Investment Power:
Due to high costs, businesses halt investments in new projects, technologies, and equipment. So, companies are less likely to take high risks.
4. Impairing Income Equality:
Housing, healthcare, and education costs first affect the lower-income groups. It can lead to social and political tensions in the society.
Other consequences of high costs in an economic crisis are:
- Negative Impacts on International Trades
- Stifled Economic Mobility
- Financial Strain on Public Services
How Does Tight Credit Generate a Crisis in The Economy?
Tight credit conditions in Canada have profound impacts on the Canadian economy. For instance, it affects the borrowing capacity of Canadians, causes high interest rates, turndown consumer purchasing power, cuts in business expansion, and affects financial market stability. Let me expand it further.
1. Negative Impacts on the Borrowing Capacity of Canadians:
Tight credit conditions mean businesses and individuals face difficulties getting loans from banks and financial institutions. It halts their expansion programs and sometimes makes meeting day-to-day financial obligations difficult.
2. Causes High-Interest Rates:
Federal/central banks in Canada used to raise interest rates, leading to high debts and slow business growth.
3. Turn Down Consumer Borrowing Power:
Due to tight credit conditions, consumers are less likely to borrow money from the market. People stop buying homes and cars and go for higher education.
4. Cuts in Business Expansion:
Businesses find difficulties in securing funds for the market for their expansion programs. It led to a slowdown in the economic growth of Canada.
5. Unstable Financial Market:
Tight credit conditions profoundly impact stock prices in the stock market and bond yields. It leads to increased volatility in the financial market.
Other ensues of tight credit conditions are:
- Shortage of Business Capital
- Negative Impacts on the Real Estate Market
- Negative Feedback Loop
- Impaired Government Borrowing
How Can We Help You in the Economic Crisis Period in Vancouver/Surrey?
We can extend helping hands by offering the following services in Vancouver/Surrey in Canada.
1. Debt Consolidation Services
Debt consolidation services can help every Canadian suffering from the burdens of different types of debt in their personal and professional life. You will pay your monthly installment for only one loan with a lower interest rate instead of separate payments on different interest rates.
2. Bankruptcy in Surrey
Bankruptcy in Surrey doesn’t mean the end of your financial life, but our consulting services will give you a fresh start in viable and legitimate ways.