After rapid gains in the early part of the year, Canada’s economy slowed in the second quarter and is expected to rebound only modestly over the second half of the year, according to the latest Economic Outlook report from RBC Economics.

RBC slightly pared back its 2010 forecast, expecting GDP growth of 3.3 per cent which is down from 3.6 per cent projected last quarter.

“While Canada’s second quarter growth put real GDP close to its pre-recession high, concerns in the U.S. and nervousness about the health of the global economy are weighing on the 

outlook for the second half of the year,” said Craig Wright, senior vice-president and chief economist, RBC.

RBC forecasts that the economy will continue to grow and that the output gap will be completely eliminated by mid-2012. The labour market has recovered 94 per cent of the jobs lost during the recession and the unemployment rate is expected to decline to 7.3 per cent by the end of 2011, from the 8 per cent that prevailed the second quarter of this year.

>> See Canadian and provincial economic growth reports

(Reuters)By Louise Egan

OTTAWA (Reuters) – The Bank of Canada raised its benchmark interest rate for a third consecutive time on Wednesday and sounded surprisingly hawkish despite predicting a more gradual than expected economic recovery.

The central bank nudged its overnight rate target up 25 basis points to 1 percent and, contrary to most economists’ expectations, did not signal a pause for its next decision in October. It said rates remained “exceptionally stimulative” but kept all options open due to doubts about the U.S. and global recoveries.

“Any further reduction in monetary policy stimulus would need to be carefully considered in light of the unusual uncertainty surrounding the outlook,” it said in a statement.

The Canadian dollar jumped to a session high against the U.S. currency, touching C$1.0369 to the U.S. dollar, or 96.44 U.S. cents from C$1.0486 to the U.S. dollar just before the announcement.

Short-term money market rates and bond yields also jumped. The yield on the rate sensitive two-year Canadian government bond rose to 1.377 percent from 1.266 percent just before the news.

“Generally it’s a very upbeat statement, it’s a little more hawkish than I anticipated,” said Derek Burleton, Deputy Chief Economist at TD Bank Financial Group. “This will cast some uncertainty about whether the bank will pause at the next fixed announcement date.”

The Bank of Canada has raced ahead of its Group of Seven peers in raising borrowing costs after the global financial crisis. It lifted its policy rate on June 1 from an all-time low of 0.25 percent and raised rates again on July 20.

The U.S. Federal Reserve, by contrast, has raised the prospect of further easing and counterparts in Europe and Japan are likewise far from ready to tighten monetary policy.

CLOSE CALL

Markets had seen Wednesday’s rate hike as a close call because of rising fears of another U.S. economic downturn. Twenty-five out of 41 forecasters in a Reuters poll had predicted a hike. Most analysts also expected the bank to hold rates steady in October and December and possibly longer as it tracks developments elsewhere.

After the rate announcement, markets were pricing in an about a 68 percent probability the bank would leaves rates unchanged in October based on yields on overnight index swaps, according to a Reuters calculation.

“As it stands right now, our official call was for the Bank to remain on hold for the next few meetings, but that’s obviously something we have to review in light of the statement and as economic figures roll in the weeks ahead,” said Doug Porter, deputy chief economist at BMO Capital Markets.

The Bank of Canada said the 1 percent rate is “consistent with achieving the 2 percent inflation target in an environment of significant excess supply in Canada.”

The language was similar to that used in its last rate announcement on July 20. But the bank omitted any reference to weighing any further rate hikes “against domestic and global economic developments.”

U.S. TO BLAME

It acknowledged that the economic recovery was losing slightly more steam than it had anticipated just six weeks ago. Second quarter growth disappointed at a 2 percent annual rate versus the bank’s 3 percent projection. The bank will revise its official forecasts next month.

It blamed the weaker economy in the United States, which buys three-quarters of Canadian exports, for the tepid rebound in Canada. High U.S. unemployment is holding back spending by individuals and businesses, it said.

While exporters may take a beating, the bank sounded upbeat on domestic consumer spending and business investment.

“Going forward, consumption growth is expected to remain solid and business investment to rise strongly,” it said.

Most recent U.S. data have dampened fears of a double-dip recession but the recovery there is still wobbly, making it uncertain whether the U.S. Federal Reserve will see fit to take further action to drive down already rock-bottom borrowing costs.

The European Central Bank kept euro zone rates at a record low of 1 percent for the 16th month running last week and extended its program offering liquidity to banks.

The Bank of Japan stood pat on monetary policy on Tuesday but set the stage for possible easing next month.

Canada’s commodity exporting economy has been more akin to that of Australia, which hiked rates 150 basis points between October and May but has since moved to the sidelines. http://ca.news.finance.yahoo.com/s/08092010/6/finance-bank-canada-hikes-rates-sees-slower-recovery.html

Bank of Canada Governor Mark Carney will probably raise borrowing costs today for a third and final time this year before pausing to gauge the strength of the economic recovery, economists said.

Fourteen of 20 economists surveyed by Bloomberg News expect Mr. Carney to raise the bank’s policy interest rate by a quarter point to 1% in a decision to be released at 9 a.m. ET. Economists forecast Mr. Carney will keep the rate at that level until April, according to a separate survey.

Policy makers may be unwilling to tighten policy further as Canada’s economy expanded more slowly than anticipated in the second quarter, and as the U.S. proposes additional stimulus amid signs of renewed weakness. Mr. Carney may also signal greater risks to its projections from weakness outside Canada.

“The bank will position itself for a slower growth scenario,” said Marc Rouleau, a fund manager at Standard Life Investments in Montreal who helps manage $18-billion in fixed-income assets.

The bank’s June 1 increase, which was followed by another on July 20, was the first among Group of Seven countries after last year’s global recession. Canada has recovered from the slump faster than the U.S., having already returned to pre- recession levels of employment. Carney has said the current 0.75% rate still provides “considerable monetary stimulus.”

The bank has also warned the risks to its projections are elevated, and that future rate increases are not “pre- ordained.” Last month, diminishing prospects for U.S. growth sent global stocks tumbling and prompted the Federal Reserve to signal the possibility of adding monetary stimulus.

Canadian investors have pared bets over the past month that Mr. Carney will increase lending rates. The yield on December 2010 bankers’ acceptances contract, the most actively traded contract, has fallen to 1.14%, from 1.29% a month ago and a 2010-high of 2.02% on April 21. The contracts have settled an average of about 20 basis points above the central bank’s overnight target since 1992, Bloomberg data show.

The Canadian economy, after growing at an annualized 5.8% pace in the first quarter, slowed in the April-June period to a 2% rate — a full percentage point below the central bank’s prediction. As well, employers cut workers in July for the first time this year and the core rate of inflation, which is closely watched by the bank, unexpectedly slowed to 1.6% in July.

Canada “remains on sounder footing than the U.S., but all eyes are focused on U.S.,” said Anil Tahiliani, a fund manager at McLean & Partners Wealth Management in Calgary, Alberta, in an e-mail. “We expect after this small increase of 0.25%, the BOC will go on hold since the economy is starting to slow and global economic concerns take front stage.”

Earnings for Standard & Poor’s/TSX Composite Index companies that have released results since July 12 have dropped 4.3% from a year ago, pulled down by Manulife Financial Corp., Canada’s largest insurer, which on Aug. 5 reported a $2.4-billion loss that was more than double forecasts.

U.S. President Barack Obama is proposing to expand tax relief for businesses and boost federal spending on transportation to help bolster the economy. In Milwaukee on Sept. 6, Obama called for US$50-billion in the first of a six-year program to fix roads and railways.

The U.S. Federal Reserve moved Aug. 10 to shore up the recovery, deciding to reinvest principal payments on mortgage assets it holds into long-term Treasuries. Policy makers put a US$2.05-trillion floor on the Fed’s securities holdings to prevent money from draining out of the financial system.

Fed Chairman Ben S. Bernanke said in an Aug. 27 speech that while the “preconditions” for stronger growth year are in place, the Fed was prepared to embark on more stimulus, such as asset purchases, if needed.

Mr. Carney may want to avoid providing too much direction to investors given uncertainty over the economic outlook, said Eric Lascelles, chief economics and rates strategist with Toronto- Dominion Bank. Canada’s GDP report showed domestic demand remains buoyant, led by investments from businesses such as Potash Corp. of Saskatchewan Inc. and Suncor Energy Inc.

“I don’t think this is the sort of thing where the market is going to come out and say, ‘Well, they are pausing with absolute certainty in October,’” said Mr. Lascelles, chief economics and rates strategist with Toronto-Dominion. “I suspect the bank does want to keep those options open.”

Read more: http://www.financialpost.com/news/Bank+Canada+expected+hike+then+pause+rates/3493767/story.html#ixzz0ywJcnOz0

Paul Vieira, Financial Post · Monday, Sept. 6, 2010

OTTAWA • What a difference a week makes in gauging the state of the Canadian economy.

At the start of last week, few market players believed the Bank of Canada would raise its benchmark rate on Wednesday as concern over its largest trading partner, the United States, mounted. The U.S. economy was believed to be on the verge of flirting with a double-dip recession, given the spate of weak economic data traders had grown accustomed to over the summer.

But two key U.S. pieces of August data released last week — the ISM manufacturing index and non-farm payrolls — were better than expected and suggested the North American economic recovery, while sluggish, marches on and is in no real danger of falling into an abyss. This helped trigger a “vicious” sell-off in bonds, in which investors piled in because of fears of a severe economic slowdown.

The result: The probability that Mark Carney, the Bank of Canada governor, will raise interest rates by 25 basis points, to 1%, increased to slightly more than 60% on Friday from less than 50% as of late August.

The good-looking U.S. data “tipped the scale heavily” toward a rate hike, said Douglas Porter, deputy chief economist at BMO Capital Markets.

Also playing a role was Canadian GDP data for the second quarter, which on the surface appeared tepid — 2% annualized growth, well below the rapid pace recorded in previous quarters. But analysts say the Canadian economy is stronger than the second-quarter headlines indicated, with final domestic demand still advancing at a robust pace. Plus, much of the second-quarter drag was from so-called “import leakage,” in which gains in imports — as firms acquired productivity-enhancing equipment at the fastest pace since 2005 — outstripped exports. Income data also showed wages and salaries grew “a very solid” 4.8% annualized in the three-month period, according to economists at Moody’s Analytics.

“Although growth slowed more than expected in the second quarter, the cause of this slowing does not suggest that there has been significant deterioration in the economy’s overall health,” said John Clinkard, chief Canadian economist at Deutsche Bank.

“Given the surge of investment in new machinery and equipment in the second quarter, that [means] business confidence is strong,” Mr. Clinkard said.

Still, much doubt remains about the health of the United States. The Bank of Canada’s economic outlook, released just two months ago, now appears too optimistic given recent trends. It expected the economy to reach its full potential late next year, but that could be pushed out further with weaker economic indicators in the United States and Canada. Plus, recent data suggest inflation, which ultimately drives the bank’s rate decisions, poses no threat as the key core rate — which strips out volatile-priced items — has slowed for two straight months.

These factors are driving analysts to scale back expectations for rate hikes for the remainder of 2010 and into 2011, predicting the Bank of Canada will pause for a while to see where all the economic dust settles. For instance, Bank of Nova Scotia chief economist Warren Jestin now envisages the central bank moving its benchmark rate no higher than 1.75% next year, or 50 basis points below previous forecasts.

Last week’s U.S. data may have put to rest fears of a double-dip recession, “but we are also tracking a U.S. economy that is nowhere near the pace it needs to be at this stage of the business cycle,” said Avery Shenfeld, chief economist at CIBC World Markets. The United States still requires “easy monetary policy and a softening in next year’s planned fiscal tightening if it is going to stay out of trouble.”

Even with positive jobs and manufacturing data, the week ended with a bit of a reality check for the U.S. economy with figures showing growth slowing in the service sector, which accounts for 80% of U.S. output.

The U.S. Federal Reserve is expected to refrain from rate hikes for a while — well into 2011, according to most analysts — with the U.S. economy still in a lacklustre state. The Bank of Canada, then, won’t want to raise rates too aggressively ahead of the Fed or risk the Canadian dollar appreciating to levels that start to take a bite out of economic output.

In fact, speculation is that the Fed would inject further liquidity, through another round of securities purchases, before considering a rate hike. But senior Fed policymakers remain divided on that need, with Dennis Lockhart, president of the Federal Reserve Bank of Atlanta, describing fears of deflation and a double-dip recession as “alarmist.”

In addition, Mr. Lockhart said that, despite all the worry, the U.S. economy remained on a “gradual recovery track.”
Read more: http://www.financialpost.com/news/Favourable+data+suggests+Canadian+rate+increase/3487100/story.html#ixzz0yqQg7dlu

 In one of the hottest real estate markets in history, where would your money have grown faster?

Ted Rechtshaffen

Globe and Mail Update Published on Friday, Sep. 03, 2010 6:00AM EDT Last updated on Friday, Sep. 03, 2010 6:35AM EDT

Last week I wrote about four reasons to sell your cottage now.

There was a great deal of feedback, much of it related to the family values and lifetime of memories that a cottage can provide. To that I say – “To those who love their cottage, I salute you!” My personal philosophy with clients is that all decisions need to be based on what is important to you, and that the financial piece is simply a tool to support achieving those goals.

Having said that, last week I touched mostly on the non-financial aspects of the own versus rent a cottage discussion.

From a purely financial perspective, I would strongly argue that the investment markets are better place for your money. Even in one of the best real estate markets in history, cottage investment has underperformed an average mutual fund (and I believe that you could do much better than investing in mutual funds, but that is another article).

The example I will use came from a reader who said: “My cottage purchased 18 years ago for $125,000 is now worth over $400,000. I’m sure this is a better return than your investing clients realize.”

The Cottage as an Investment

On the surface, turning $125,000 into $400,000 in 18 years is a 7.1 per cent return before taxes (there will be capital gains taxes on the cottage, assuming it is not the owners principal residence).

However, the real return on owning a cottage must factor in the upkeep costs. Between property taxes and annual upkeep I have assumed 1.8 per cent of the value of the cottage a year. This number is different depending on the property and location, but I would argue that for most the number is in the 1.25 per cent to 2.5 per cent a year range. For the purpose of simplicity, I simply deducted these 18 years of costs from the final price. This is being a little generous to the cottage argument, as it doesn’t take into account inflation.

To compare investments properly, you also need to be able to realize your gains. For a cottage this requires a sale. Between real estate commissions, legal work and some extra funds to prepare the cottage for sale, I have assumed 7 per cent of the sale price goes towards expenses. I assumed 1 per cent extra costs on the purchase price.

Now the actual pretax return on the cottage after expenses drops to 5.1 per cent. It is the equivalent of the original investment of $125,000 plus 1 per cent in costs, growing to $294,500 today (after all costs were stripped out).

Investing in a Mutual Fund

I assumed the investment alternative was a mutual fund (with all expenses included) that has been around for roughly 18 years.

Below is a list of four funds that were rated two-star and three-star (out of five) by GlobeFund, that meet the criteria:

Acuity High Income Fund – 3 stars – 6.8 per cent since inception 18 years ago

CIBC Dividend Growth – 3 stars – 7.57 per cent since inception 19 years ago

Co-Operators Fixed Income – 3 stars – 6.34 per cent since inception 18 years ago

Invesco Canadian Balanced – 2 stars – 7.32 per cent since inception 18 years ago

A better performer is RBC Canadian Dividend (rated 4 stars), which actually returned 11.36 per cent over the past 17 and a half years, but I won’t use this as an example.

So instead of buying the cottage 18 years ago for $125,000, you could have put those funds in the Invesco Canadian Balanced fund. After 18 years this would have grown to $415,400.

To be more tax efficient, you could have purchased the CIBC Dividend Growth fund, and it would have been worth $432,175.

In either case, after costs, you would have an extra $120,000 to $137,000 in your pocket today (pre tax) by purchasing an average performing mutual fund than by owning this particular cottage over the past 18 years.

With that $120,000+, you could have paid for some very nice cottage vacations over the past 18 years, and still had enough money to buy a couple of nice cars to take you there and back.

Just imagine what would have happened if the real estate market hadn’t been on fire. You might have been able to buy a cottage with the extra cash from investing in mutual funds.

Read more: http://www.theglobeandmail.com/globe-investor/personal-finance/cottage-v-mutual-fund-which-is-better/article1693671/?cmpid=rss1&utm_source=feedburner&utm_medium=feed&utm_campaign=Feed%3A+TheGlobeAndMail-Business+(The+Globe+and+Mail+-+Business+News)

Valley buyers       

(Surrey, BC) – The Fraser Valley Real Estate Board (FVREB) processed 997 sales on its MLS® in August, a decrease of 44 per cent compared to the 1,786 sales during the same month last year and 9 per cent fewer than in July, however 10 per cent more than the 910 sales in August 2008.

Deanna Horn, FVREB President, explains, “In August, sellers in the Fraser Valley took as much of a break as buyers.

“Even with our slowdown in sales, we’re seeing inventory edge lower. Since May, we’ve seen our volume of active listings decrease by 10 per cent.” 

The Fraser Valley Board posted 11 per cent fewer new listings in August compared to the previous month, the fourth month in a row of declining new inventory. At the end of August, the total active inventory was 10,287, 5 per cent less than in July, however still 14.5 per cent more than the selection available in August 2009.  

Horn adds, “Our selection of homes is healthy, interest rates remain historically low and prices are moderating, which represent excellent conditions for buyers. We’re currently seeing residential prices edge down month-over-month, but remain 4.7 per cent higher than they were a year ago.”   

The benchmark price for Fraser Valley detached homes in August was $510,107, down 0.1 per cent compared to July and 5.4 per cent higher compared to $483,839 in August 2009.   

The benchmark price of Fraser Valley townhouses in August was $324,485, a 0.4 per cent decrease compared to July and a 4.5 per cent increase compared to August 2009 when it was $310,389. The benchmark price of apartments decreased by 1.9 per cent from July and increased 1.5 per cent year-over-year going from $236,146 in August 2009 to $239,659 in August 2010.   

Information and photos of all Fraser Valley Real Estate Board listings can be found on the national, public web site www.REALTOR.ca. Further market statistics can be found on the Board’s web page at www.fvreb.bc.ca. The Fraser Valley Real Estate Board is an association of 2,972 real estate professionals who live and work in the communities of North Delta, Surrey, White Rock, Langley, Abbotsford, and Mission. 

Full package:

http://www.realtorlink.ca/portal/server.pt/document/3236287/package_201008_pdf

 John Greenwood, Financial Post · Thursday, Sept. 2, 2010

Bank of Montreal has chopped its benchmark five-year mortgage rate, aggressively throwing its weight behind what many are calling an increasingly wobbly housing market.

“It’s a great time to buy a home,” Martin Nel, a senior BMO official, said in news release announcing the change. He added that people who take advantage of the offer will benefit.

“If ever there was a time to buy, it is now,” Mr. Nel said.

The move, which takes effect today, brings the bank’s key five-year rate to 3.59%, down from 3.79%, making it one of the lowest five-year rates ever offered by a Canadian bank, says industry newsletter CanadianMortgage Trends.

But some experts are already scratching their heads because of the aggressive tone of the announcement as well as the timing, given the recent spate of warnings about the uncertain state of the market, including one earlier this week from the Canadian Centre for Policy alternatives predicting an imminent collapse.

When the big banks make mortgage rate changes, they generally just disclose the new numbers without commenting on housing market conditions. If pressed, bank officials are usually quick to explain that the changes in these consumer lending rates are merely a function of fluctuations in their own borrowing costs.

“It’s a bit puzzling to me,” John Andrew, a professor at Queen’s University’s School of Urban and Regional Planning, said of the BMO announcement. “Perhaps they are concerned that the number of new customers will fall off precipitously.”

Residential real estate prices have been in free-fall in the United States as well as many European countries, in contrast to the Canadian market, which has been on a tear for a good part of the past decade with prices in many cities at record levels.

But analysts worry that it’s only a matter of time before the Canadian housing market moves in the same direction, and they point to warning signs that have already appeared.

Earlier this year, Moody’s reported that debt-to-income levels of Canadian households are the highest ever and close to where they were in the United States before that market started to fall apart in 2007.

The Bank of Canada has raised concerns that the high debt loads of Canadian consumers have made them vulnerable to changes in interest rates and potential deterioration of the economy.

In a bid to crack down on what some described as reckless real-estate speculation, the federal government brought in new regulations in the spring to make it harder for first-time buyers to qualify for government-backed mortgage insurance.

Borrowers must now meet standards for a five-year fixed-rate mortgage, even if they want a shorter-term, variable-rate product. As the key measuring stick for many homebuyers, a lower five-year mortgage rate will mean that more people will qualify to buy more expensive homes than with a higher mortgage rate.

The tougher rules had the desired effect. The recent imposition of the new harmonized sales tax in Ontario and British Columbia also affected demand, and as a result the market cooled so much that industry insiders became worried it had gone too far.

The Canadian housing market is important to the banks because residential mortgages make up the single biggest asset class on their balance sheets.

There are nearly $1-trillion of home loans outstanding, to the Bank of Canada says. About half of these loans are held by the chartered banks.

Read more: http://www.financialpost.com/ever+there+time+says/3471835/story.html#ixzz0yNEHN8mj

One of the biggest mistakes small business owners make is to view sales and marketing as the same thing, says Steve Gedeon, director of Ryerson University’s Entrepreneur Institute. “The typical narrow view of marketing is that it’s the stuff you do to convince people to buy your stuff. They tend to think of marketing as advertisement. But the broader and more appropriate view is that it is about getting yourself into the headspace of your customer.”

It is an important distinction. “Most marketing textbooks and university courses focus on big, established companies with multimillion-dollar budgets and healthy marketshare,” Mr. Gedeon says.

“That doesn’t work for small businesses. Marketing for small business is very different than what is taught. As a result small business owners tend to think of marketing as a luxury they can’t afford. Advertising is a luxury they can’t afford. Running around and hiring brand management consultants is a luxury they can’t afford. But thinking through what you should be doing is something you can’t afford not to do. Half of all companies die in the first five years. And if nobody knows about you, that could be you.”

Mr. Gedeon offers some advice on how to think about marketing and promotion:

Marketing is about analysis. It dictates who you sell to, what you sell to them, how you sell it to them, how much you sell it to them for and the way in which you organize yourself to deliver what you’re selling. Done right, it is far and away the most important aspect of a business.

Marketing should be front and centre. It is very rare for an entrepreneur to stumble across a new product, work on it and then as an afterthought figure out how to sell it and be successful.

Marketing is about the customer. The more you get into their headspace, the easier it is to determine where they hang out, what types of things appeal to them and how they are going to use your product or service. Most products and services are not used in a vacuum. Rather they are used in collaboration with other things. They are not sold in a vacuum, either. They are sold in association with other products. Marketing research will help you make those connections.

The level of marketing analysis needed to drive sales is determined by the business. For example, a restaurant in the theatre district will require less analysis than a software developer making enterprise resource planning solutions. In the latter scenario, you have to understand in detail who within your client’s company will be using the software, what they are using it for, and how they interact with other employees and customers. In other words, your software has to be deeply embed into the lives of your customer’s employees.

Promotion and sales are a subset of marketing. Promotion feeds the awareness stimulating need/desire in potential clients and hopefully leads them to purchase. Marketing will point you to where and how you should be placing your product. Promotion will help you close the deal.

Read more: http://www.financialpost.com/small-business/advice/Marketing+small+business+different/3436088/story.html#ixzz0xnu4LIGT

by Michael Sanibel, Investopedia.com

The recent financial  crisis and recession have been a worldwide occurrence. The events in the United States since 2008 have garnered most of the headlines because the U. S. has the world’s largest economy and national debt, but the reality is that many countries in Europe are in worse financial shape and continue to deteriorate.

There are various ways to rank indebtedness, such as debt per capita and deficit or debt as a function of gross domestic product (GDP). This ranking is based on cumulative debt as a percentage of GDP and is limited to an analysis of the 25 largest economies. It is further limited to “external” debt, which is the portion of the national debt that is owed only to foreign creditors. The source for the debt and GDP amounts is the Central Intelligence Agency World Factbook most recent numbers from mid to late 2009.

   1. Ireland – Debt/GDP: 997%
      The days of Ireland enjoying one of the fastest growing economies in Europe are over, at least for now. The story is all too familiar, as easy credit fueled a housing bubble that burst and damaged consumer confidence.

      After recording budget surpluses in the prior two years, the economy reversed course in 2009 and contracted 7%. This eroded tax revenues and sent the annual deficit to a record 14.3% of GDP. The European Union set a target for Ireland to reduce that figure to 3% by 2014, but the International Monetary Fund has indicated that the deadline will be missed. Moody’s has subsequently lowered its bond rating.

   2. Netherlands – Debt/GDP: 467%
      The national debt in the Netherlands has reached record levels as a result of the world financial crisis and recession. Much of the added burden was caused by significant government support for the country’s banking sector. The increase in debt per capita is second only to that experienced in Ireland.

      The Netherlands joined the eurozone with a hard guilder a decade ago, but its current debt would likely disqualify it for membership.

   3. United Kingdom – Debt/GDP: 409%
      Investment bank Morgan Stanley fears that Great Britain could face a severe debt crisis in the near future if it continues down its current path. According to the bank’s report, this is a case of not putting aside sufficient reserves when the economy was sound. During the peak of the boom, it still ran a budget deficit of 3% of GDP when other European countries were running surpluses exceeding 2%.

      Like many other countries, Britain bought time during the financial crisis by implementing massive fiscal stimulus and forcing the public to fund losses in the private sector. Without the restoration of fiscal credibility, there is a significant danger of a government bond sell-off, pound weakness and a flight of capital.

   4. Switzerland – Debt/GDP: 273%
      Generally regarded as having one of the world’s most stable economies, Switzerland has taken its budget crisis seriously. When the national debt began to escalate in the last decade, the Swiss voted to approve a constitutional amendment forcing the government to balance expenses and revenue during each economic cycle. While annual deficits may still occur, this has instilled discipline in the process and lowered the country’s borrowing costs as investors rushed to safety.

      This so-called “debt brake” was implemented in response to increasing debt stemming from a slowdown in economic growth. Deficits climbed as spending rose for unemployment benefits and tax revenues declined. While government expenditures were cut across the board, rising revenues have not been sufficient to pay down the incurred debt.

   5. Portugal – Debt/GDP: 228%
      With last year’s deficit coming in at 9.4% of GDP, the Portuguese government has instituted a growth and austerity program with the objective of reducing that number to 2.8% by 2013. These measures have sparked strikes in the public sector including postal and transportation services. Those events have been further propelled by unemployment above 10%, the worst in 40 years.

      The root problem has been low productivity and virtually no economic growth in the past few years. Portugal ranks last in GDP growth among countries that adopted the euro as a common currency. Demand for goods and services has stalled, along with innovation and business momentum. In addition, Portugal’s exports have been undercut by cheap labor in countries such as China. (For related reading, see The Economics Of Labor Mobility.)

   6. Austria – Debt/GDP: 214%
      The recession and government assistance to banks have contributed to the budget crisis in Austria. The finance minister has rejected the notion of higher taxes in favor of administrative reforms to cut spending. He has predicted that the annual deficit would grow from 3.5% to 4.7% of GDP between 2010 and 2012 before starting to decline. That peak would be the third-highest since 1976 when such data were first recorded.

      Rising unemployment has resulted in increased expenditures for unemployment compensation and other government benefits. In addition to the reduced payrolls, tax reforms have driven down overall tax revenues.

The Bottom Line
While the U.S. and Canada have large economies, their respective debt-to-GDP ratios are 93% and 62%. The U.S. gets most of the attention because of the size of the numbers that comprise the ratio – $13.5 trillion debt (June 2009) and $14.4 trillion GDP (2009 estimate).

By comparison, China and India have ratios of 7% and 20% respectively. Their economic growth rates have also exceeded the western nations over the past few years, thereby keeping their debt ratios relatively low. If the western nations don’t implement policies to reduce their debts, they run the risk of jeopardizing future economic growth and prosperity. http://ca.finance.yahoo.com/personal-finance/article/yfinance/1785/top-6-most-indebted-countries-and-why