Cracks seen in Canada's economy as Joe Oliver delivers budget

In a gallery of world economies, Canada was once a master, the envy of some powerful countries, then mired in their own crippling recessions in 2008 -2009.

Prime Minister Stephen Harper could tourthe U.S. talk show circuit,boasting about thewell-regulated banking systemwhich helped Canada avoid the worst of the fallout from the global recession.

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But six years later, on the eve of a federal budget, the portrait of theCanadian economy has some cracks.

"Canada's past performance really isn't a good indication of future performance," says economist David Madani of Capital Economics.

"I think we're only at the beginning." The economywill get worse as we move through the year, he says.

CBC budget coverage Tuesday

CBC News will have full coverage of Finance Minister Joe Oliver's budget on Tuesday, starting with a specialPower & Politicswith Evan Solomon at 2 p.m. ET on CBC News Network and streaming live onCBCNews.ca.

Join a live pre-budget chat onCBCNews.caat 3 p.m. ET, then tune in to CBC News's budget special with PeterMansbridgeon CBC Television and CBC News Network at 4 p.m. ET, or watch a livestream of Joe Oliver's full budget speech onCBCNews.ca. CBC Radio will also have special coverage starting at 4 p.m. ET.

Our live chat continues atCBCNews.caat 5 p.m. ET, whilePower & PoliticsandThe Exchangewith AmandaLangoffer analysis and reaction on CBC News Network, followed by a complete wrap-up onThe Nationalat 9 p.m. ET.

The drop in oil prices threatens to pull $14 billion out of federal and provincial government coffers, according to the Conference Board of Canada. The hardest hit will beAlberta, Saskatchewan and Newfoundland.

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The wrong time for a balanced budget?

Even so, federal Finance Minister Joe Oliver has promised to deliver a balancedbudget on Tuesday afternoon.

"Everyone says they want a balanced budget; few have the steel to do what it takes to get the job done,"he said in a speech to the Economic Club of Canada two weeks ago.

But as growth and employment slow, some economywatchers believe that's poor timing, motivated by politics and the upcoming federal election, more than forecasts.

"Right now, the federal government is obviously more pre-occupied with balancing their budget rather than providing some support to the economy," says Madani.

"As we move through the year, I think there will be more clear, obvious signs that the economy is really struggling and needs that support."

There are sure signs of weakening and insecurity. While March showed positive job growth, full-time jobs actually shrunk by 28,000, more of the gains were in part-time work. Employers concerned about an uncertain future are proceeding cautiously.

And most acutely in the resource-rich provinces, Alberta, Saskatchewan and Newfoundland and Labrador.

Investment in the overall oil and gas sector in Canada will drop to $30 billion from $70 billion last year, according to chief energy economist Peter Tertzakian, of ARC Financial Corporationin Calgary.

"Certainly in directly exposed areas like Alberta and Saskatchewan, you're feeling it," says Tertzakian. "But it will ripple across the country; it usually takes a lag."

"The rigs are all parked now,the phone will probably stop ringing, and a lot of the workers probably won't get called back for the summer," he warns.

Layoffs in the auto sector

Oil and gas is not alone. Restructuring in manufacturing is happening at the same time. Canada's auto industry, traditionally an engine of growth with stable, well-paying jobs, is retracting. Auto manufacturers are using rotating layoffs to contain costs.

Corina Colacicco and her husband are symbolic of the changing nature of work. She's on the chassisline at General Motors in Oshawa, but will be sent home for at least fiveweeks this year in the rotating layoffs. Although her husband Joe hasworked at GM for tenyears,he's still not considered a full time employee.

"It gets nerve-wracking because my husband as well is at GM, and if anything happens, we would have to look at other jobs, which is very next to none right now."

She wants the government to focus on job creation, her number one demand.

"Stable jobs, just to know that you're going to work everyday and you don't have to worry that if, in a months time, I'm still going to be working," says Colacicco.

Record high household debt

Another sign of weakness in the Canadian economy isrecord high household debt, whichhas climbed 22 per cent since 2009.The Colacicco's became parents three years ago andhomeowners 5 years ago. Theysay their mortgage is manageable now but, like a lot of Canadians, they'd be in a precarious position ifone of them lost their job.

"Canada's increase in household debt is second only to Greece since the financial crisis." says economist Susan Lund, of McKinsey Global, the co-author ofa report on global debt since the recession.

She puts Canadian household debt at 155 per centof disposable income. "To put that into perspective, it's much higher than U.S. household debt was back in the peak, in 2007," Lund says. "And it's continuingto grow."

She questions whether current debt levels are sustainable.

Bank of Canada Governor Steven Poloz called the impact of low oil prices on Canada's economy "atrocious."He says the downside has hit faster, but not deeper, than forecast.

"Other areas of the economy are performing well," he said last week, benefiting from a low loonie and growth in the U.S., Canada's largest trading partner.

Madani is not so bullish.And he says if Canadians are complacent about a worsening economy, who can blame them, given their savings from lower gas prices.

"Households would be happy to be paying a lot less at the pump. So we've seen that, but we haven't yet seen the full negative effects from the cuts in the oil and gas sector."

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