To­tal soars 6% year-over-year to $1.82 tril­lion

National Post (Latest Edition) - - FRONT PAGE - Ge off Zo chodne

TORON TO • A fresh wave of con­cern has washed over the grow­ing amount of debt Cana­di­ans have piled up.

Equifax Canada said Mon­day that the coun­try’s con­sumers owed $ 1.821 tril­lion as of the fourth quar­ter of 2017, a new high that was up 1.3 per cent from the pre­vi­ous quar­ter and six per cent from a year ear­lier.

There were signs that Cana­dian con­sumers were manag­ing to keep on top of their debts for the time be­ing, ac­cord­ing to Equifax. The credit-re­port­ing agency said the 90-day-plus delin­quency rate fell by 6.4 per cent yearover-year, and that con­sumer bankrupt­cies were down by 1.7 per cent.

“It looks like, given the cur­rent eco­nomic en­vi­ron­ment, the debt is still sus­tain­able,” said Regina Malina, se­nior direc­tor of de­ci­sion in­sights at Equifax Canada.

How­ever, Malina also noted that the eco­nomic en­vi­ron­ment could change. “I think, be­cause of the high debt, it is more im­por­tant than ever to re­mind con­sumers to stick to the key princi- ples of re­spon­si­ble spend­ing and bud­get­ing,” she said.

Canada’s debt is be­ing watched closely by cen­tral bankers both at home and abroad for signs of trou­ble. Equifax’s lat­est fig­ures even came a day af­ter the Bank for In­ter­na­tional Set­tle­ments pub­lished a re­port on early warn­ing signs of a bank­ing cri­sis, which had sin­gled out Canada as one of those that is most at risk.

The Swiss- based BIS said in its re­port that some credit- re­lated in­di­ca­tors “point to vul­ner­a­bil­i­ties in sev­eral ju­ris­dic­tions,” and added that Canada was one of those that had stood out, with both its credit- to- GDP gap and debt ser­vice ra­tio “flash­ing red" un­der the group’s colour­coded scheme.

The credit- to- GDP gap is the dif­fer­ence be­tween the credit- to- GDP ra­tio and its long- term trend, while the debt ser­vice ra­tios track in­ter­est and prin­ci­pal pay­ments com­pared to in­come.

China and the Hong Kong spe­cial ad­min­is­tra­tive re­gion had sim­i­lar, red read­ings as Canada for the two in­di­ca­tors, sig­ni­fy­ing that those coun­tries’ in­di­ca­tors had cracked a cer­tain level for pre­dict­ing at least two- thirds of fi­nan­cial crises.

“For Canada and Hong Kong, these sig­nals are re­in­forced by prop­erty price de­vel­op­ments,” said the BIS, which is owned by 60 cen­tral banks, in­clud­ing Canada’s.

Even so, the BIS said that its in­di­ca­tors should not be viewed as “a defini­tive warn­ing,” just as a first step to­ward a broader study.

“Early warn­ing in­di­ca­tors are not per­fect,” said Mathias Drehmann, an economist at the BIS, in an online video. “In fact, it turns out that the prob­a­bil­ity of a fi­nan­cial cri­sis is around 50 per cent once we see an early warn­ing in­di­ca­tor sig­nal. How­ever, it may even take more than three years.”

But the Bank of Canada has also been eyeing house­hold debt in the wake of its three i nter­est- rate hikes since last sum­mer.

T he cen­tral bank an­nounced last week that it would keep its key in­ter­est rate at 1.25 per cent, and Ti­mothy Lane, deputy gover­nor of the bank, said it would be watch­ing how con­sump­tion re­sponds to higher in­ter­est rates.

“Higher in­ter­est rates are also ex­pected to dampen house­hold spend­ing,” Lane said, ac­cord­ing to a copy of his re­marks. “This ef­fect is likely to be stronger than in the past, since the av­er­age house­hold is now more heav­ily in­debted.”

Lane added t h at the bank’s de­ci­sion to move “grad­u­ally” has al­lowed it to ab­sorb new data on sev­eral is­sues, in­clud­ing that, “with house­hold debt at high lev­els, the eco­nomic ef­fects of in­ter­est-rate in­creases could be dif­fer­ent than in the past.”

In an­nounc­ing its rate de­ci­sion, the cen­tral bank had also noted that house­hold credit growth has slowed down for three months in a row.

“It’s still too early to firm- ly call it a trend, and credit data can be vo­latile, but it’s what one would ex­pect to see,” Lane said.

Mean­while, Royal Bank of Canada said Mon­day that Canada’s eco­nomic growth was ex­pected to slow this year, partly be­cause of house­hold debt.

“Ris­ing in­ter­est rates will take a toll on the highly in­debted house­hold sec­tor in 2018, but the soft­en­ing should be lim­ited by sup­port from a healthy labour mar­ket and ris­ing wages,” said the RBC eco­nomic out­look. “Canada’s hous­ing mar­ket is also ex­pected to come un­der pres­sure as in­ter­est rates move higher.”


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