Canadian households are still borrowing more than they can afford, despite continued warnings from the Bank of Canada, the latest data from Statistics Canada showed Tuesday.
The ratio of credit market debt to personal disposable income rose to a new record high of 150.8% in the third quarter of 2011, the third straight quarter the figure has gone up.
Credit market debt factors in consumer credit, mortgages and loans but not debts on small businesses and accounts for 99% of liabilities.
The only blip was a slight 15 basis point decline between the third and fourth quarters of 2010.
“The greatest risk to the domestic economy is household debt,” Bank of Canada Governor Mark Carney said in an interview with the CBC on Tuesday morning, again sounding the alarm bell on excess borrowing.
Canadian household net worth also declined 2.1% to $6.2-trillion, the second straight quarterly decline due largely to losses in personal equity holdings and pension assets.
Per capita household net worth dropped to $180,100 from $184,700 the quarter before.
Combined, this marks the sharpest drop in household net worth since the fourth quarter of 2008, StatCan said.
The ratio of credit market debt to asset and debt to net worth both reached record highs of 20.1% and 25.2% respectively in the quarter.
Overall credit market debt is now approaching $1.6-trillion, led by a $25-billion increase in mortgage debt.
Mortgage debts have crossed the $1-trillion threshold while consumer credit has also risen to $448-billion, StatCan said.
“The rising indebtedness of Canadian households has weakened their overall financial position and increased vulnerability to adverse economic shocks such as decline in home prices or a deterioration of labour market conditions,” David Onyett-Jeffries, economist with RBC Capital Markets, said in a note.
However, the pace of credit growth is moderating, growing only 1.6% in the third quarter compared with 1.9% in the previous one.
“We expect credit growth to continue to moderate over the forecast horizon,”Mr. Onyett-Jeffries said. “Our expectation of continued improvement of Canadian labour market conditions, only a modest cooling of real estate markets and the eventual stabilization of the financial markets will go some way to improving household finances and help to ensure that these risks do not materialize.”
At the same time, Canada’s total holdings in net foreign debt are up 10.5% to $237-billion, a $22.6-billion increase blamed largely on declining foreign equity holdings.
In his speech Monday, Mr. Carney warned about the dangers of foreign debt as Canada’s current account has returned to a deficit, funded largely by foreign purchases of Canadian bonds.
“Much of the proceeds of these capital inflows seem to be largely going to fund Canadian household expenditures, rather than to build productive capacity in the real economy,” he said. “If we can take one lesson from the crisis, it is the reminder that channeling cheap and easy capital into unsustainable increases in consumption is at best unwise.”
.Posted in: Economy, Personal Finance Tags: Canada, debt, debt to disposable income, domestic debt, Economy, household debt, mark carney, Statistics Canada
Eric Lam Dec 13, 2011 – 9:25 AM ET | Last Updated: Dec 13, 2011 11:16 AM ET
Article Link: http://business.financialpost.com/2011/12/13/canadian-debt-climbs-to-new-highs-statcan/