When Canada’s largest bank issues a warning that the country might be “too risky” to invest in, the investment community sits up and takes notice. Last month, RBC chief economist Eric Lascelles wrote in a Reuters column that Canada faces elevated risk levels due to high taxes, stretched housing valuations and vulnerabilities in its resource-heavy export base. The claim generated an immediate backlash from business leaders, policy makers and everyday Canadians who argue the nation’s economic fundamentals remain strong. In this blog post, we unpack the debate, weigh the arguments on both sides and consider what the outlook really means for investors contemplating Canada today.

Background: Why Did an Economist Sound the Alarm?

Eric Lascelles has a sterling track record for tested forecasts, so when he suggests Canada’s risk profile may be deteriorating, it merits attention. His main concerns include:

  • High personal and corporate tax rates: Canada’s combined federal and provincial levies often rank near the top among developed economies.
  • Housing market vulnerability: After years of rapid price appreciation—and interventionist mortgage rules—Canadian home values still appear elevated.
  • Resource export swings: With oil, gas and minerals accounting for roughly one-quarter of exports, global commodity cycles can bring sudden shocks.
  • Fiscal pressures: Rising government debt and persistent deficits could limit policy flexibility during downturns.

Taken together, these factors led Lascelles to caution that foreign and domestic investors may begin demanding higher returns—or simply steer capital to “safer” markets.

Examining the Core Criticisms

Let’s break down the key elements of the “too risky” narrative and see how they stack up against Canada’s track record.

  • Taxes vs. Services: While Canada’s top marginal rates hover above many peers, taxpayers benefit from universal health care, subsidized post-secondary education in some provinces and robust infrastructure spending. For many businesses, generous R&D credits and a stable regulatory environment help offset headline tax rates.
  • Housing Bubble Fears: Home prices in major markets like Toronto and Vancouver remain high, but mortgage stress tests and macroprudential policies have restrained unsound lending practices. Furthermore, interprovincial migration and low unemployment support rental demand and price resilience.
  • Resource Exposure: Commodity dependence does introduce volatility, yet Canada’s producers have diversified their customer base—Asia, Europe and U.S. buyers all drive demand. Advances in green technologies and value-added processing also create new revenue streams.
  • Debt Dynamics: Federal and provincial debt-to-GDP levels are above historical averages but still lower than many G7 peers. Canada’s bond markets remain liquid and rated “AA” or better, signalling that lenders are comfortable with repayment capacity.

Defending Canada’s Investment Appeal

In response to Lascelles, a chorus of finance ministers, business associations and market strategists has underscored Canada’s enduring strengths:

  • Stable Banking System: Canadian banks weathered the 2008 crisis better than many global counterparts and continue to maintain high capital buffers and conservative underwriting standards.
  • Political and Institutional Quality: With transparent rule of law, independent courts and a reputation for low corruption, Canada offers predictability that many emerging markets cannot match.
  • Skilled Workforce and Immigration: Pro-immigration policies have attracted skilled talent across tech, health care and engineering sectors, bolstering productivity growth.
  • Innovation and Clean-Tech Push: Federal and provincial incentives are channeling billions into clean energy, AI research and advanced manufacturing, creating new clusters that diversify the economy.

Long-Term Outlook: Balancing Risks and Rewards

No market is without risk. Even stalwart economies must navigate shifting demographics, geopolitical tensions and global monetary policy swings. For Canada, several themes will shape the future investment climate:

  • Monetary Policy Normalization: Interest rates have risen from historic lows, cooling some overheated sectors—but also raising borrowing costs for households and governments.
  • Energy Transition: The shift from fossil fuels to renewable energy presents both a challenge for traditional resource players and an opportunity for cleantech innovators.
  • Housing Affordability Solutions: If federal and provincial governments can ramp up supply—through zoning reforms and accelerated construction—home prices could realign with incomes, reducing systemic risk.
  • Global Trade Dynamics: Canada’s open economy benefits from USMCA and CPTPP, but rising protectionism and geopolitical frictions require vigilance and diversified partnerships.

Conclusion

Is Canada really “too risky” to invest in? The short answer: not for investors who take a balanced, long-term perspective. Yes, tax rates, housing valuations and commodity cycles pose legitimate questions. Yet for every concern, there are robust countervailing strengths—sound banks, deep capital markets, political stability and a talent pipeline driven by immigration and innovation. Rather than writing off the country altogether, savvy investors are likely to weigh specific sectors against prevailing conditions: real estate where valuations have peaked, clean energy where subsidies and R&D drive growth, or financials where underwriting discipline endures. In the end, Canada’s risk-return profile remains attractive—provided one takes an informed, diversified approach and monitors emerging trends in policy, demographics and global trade.