These past couple of weeks have been one of the worst for financial markets in quite some time. Stock market indexes around the world suffered their largest one-day losses in years, further extending losses that began back in the spring.

The economic uncertainty both in the U.S. and Europe and the decision by S&P to downgrade the U.S. credit rating have been the driving force behind all this financial distress. The rational perspective is that while the S&P decision is unprecedented for America, the downgrade changes absolutely nothing. It is simply a confirmation of market concerns about the fiscal situation. The most important point is that even with a lower credit rating, the U.S. government is still solvent. Investors in U.S. Treasuries will still get paid the interest they are owed and they will get the principal back upon maturity of the bonds.

So what does this all mean for Canada? For many months now, TD Economics has expected a rotation between drivers of growth in the Canadian economy, from consumer and government spending to exports. What recent developments imply is that that rotation may take longer than originally anticipated. The U.S. and European economies remain the destination of more than 80 percent of Canadian exports. Though the sector will likely get some offset due to the weaker loonie, continued weakness in those markets would imply that we may not be able to depend on the export sector to the same degree that we had expected, and more focus must remain on domestic drivers of growth – specifically, business investment and consumer spending.

On the plus side, TD Economics says that the latest job report indicates there remains strength in those domestic factors. The private sector added almost 95,000 new jobs to the Canadian economy, many of them full-time positions. Despite this robust job creation, however, household debt remains at record levels and the eventual rise in interest rates will force households to allocate an increasing share of income on servicing debt. As a result, consumer spending will be negatively impacted going forward, and without the boost from the export sector, real GDP growth will likely suffer in the quarters ahead, TD economists believe.

The Bank of Canada will be wary of raising rates too far ahead of the U.S. Federal Reserve. With the U.S. a long way off from reaching full capacity and a considerable amount of excess slack to still exist in 2013, the Federal Reserve is likely to keep monetary policy highly accommodative through 2011 and 2012. Currently, the Bank of Canada overnight rate is 75 basis points higher than the U.S. Fed Funds rate. If interest-rate spreads are further widened significantly, the Canadian dollar will experience further upward buying pressure, which the Canadian central bank would likely deem undesirable, since it would put the export recovery at risk.

With Canada’s inflation trends behaving well, the Bank of Canada will not likely move off the sidelines until January 2012, at which point it would hike rates in quarter point increments to achieve an overnight rate of two percent by May of next year. After a pause in the second half of 2012, we look for the overnight rate to rise to three percent in 2013.

Despite all this economic volatility, real estate continues to be a reliable investment, especially in areas of high demand such as Oakville and Burlington where house prices steadily increase year after year. Whether you are buying or selling, it is critical to seek help from a professional who knows the area and has the skills to negotiate the best price on your behalf.

Dan Cooper is an award winning Broker with Royal LePage Real Estate Services Ltd., Brokerage – the Number 1 Royal LePage Team for Canada in 2009. He can be reached at 905.338.3737, direct line at 905.849.3303 or through his innovative and interactive website at DanCooper.com. Be sure to catch the Dan Cooper Real Estate Series on DailyWebTV.com. For his free booklet How To Sell Your House For Top Dollar – Fast! or his Guide to Oakville Real Estate, please call The Dan Cooper Team.