An economist writing for Forbes magazine has tapped Canada as one of seven countries in the world that are due for a debt crisis and an ensuing recession in the next one to three years.

The trigger will be too much credit, with companies and individuals discouraged from borrowing because their debt is too high and banks then balk at lending, said Steve Keen, head of the school of economics, politics and history at Kingston University London.  

A critic of conventional economics, he argues that economists failed to anticipate the global financial crisis of 2008 because they ignored the phenomenon of banks lending too much money.

That's the situation Canada is approaching now, along with China, Australia, Sweden, Hong Kong, Korea and Norway, he writes in "The seven countries most vulnerable to a debt crisis."

"Timing precisely when these countries will have their recessions is not possible, because it depends on when the private sector's willingness to borrow from the banks — and the banking sector's willingness to lend — stops," he writes.

Government stimulus programs and programs to support first-time home buyers can postpone the pain, he argues, but credit cannot keep growing at such a rapid rate, unless GDP is growing more rapidly.

Soon to be 'walking wounded'

"When it arrives, these countries — many of which appeared to avoid the worst of the crisis in 2008 — will join the world's long list of walking wounded economies," Keen says.

Using data from the Bank of International Settlements, which now publishes a quarterly series on both government and private debt, he argues that debt service ratios from all sources, government and private, exceed 175 per cent of GDP in Canada.

The other warning signs he sees in all seven countries are private debt that exceeds 1.5 times gross domestic product (GDP) and rapidly growing debt over a period of about five years. Meanwhile GDP growth is stalled or, as in China, slower than normal levels.

In Canada, provincial government debt has mounted in recent years, while the federal government just released a budget that expands the deficit and will result in more debt at the federal level.

While other countries, especially in Europe, have higher debt ratios, they are already mired in a downturn that has been resistant to both central bank policy and government stimulus, he said.

Keen argued the U.S. did not recover from the 2008 crisis until GDP growth began to outstrip credit growth.

Of the seven countries he singles out, he sees Hong Kong as most vulnerable.