Overall growth rates expected to taper by end of 2017

Canada’s economy grew four per cent in the first half of 2017, easily making it the fastest- growing economy among G7 countries. The growth was driven in part by higher business investment, improved exports and consumption spending, and was partly due to some fiscal stimulus measures introduced by Ottawa.

But growth rates are expected to taper at the end of 2017 and through to 2019, which could intensify pressure on highly i ndebted Canadian households, particularly as the Bank of Canada is expected to continue raising interest rates in 2018, after raising them twice this year. Meanwhile, borrowing has increased around five per cent compared to a year ago, outpacing wage growth by several percentage points.

Higher household debts come as the real estate prices in some regions, particularly in Vancouver and Toronto, have ballooned.

The Bank of Canada report said i ndebtedness, especially the number of highly indebted households, remains high. Household debt relative to income has reached historically lofty levels and continues to grow.

But it noted there’s already some green shoots that suggest stricter lending rules have started to reduce the country’s exposure to hefty debtloads, pointing to mortgage insurance policy changes such as a stress test introduced by the federal government last year.

Further easing is likely on the way due to higher interest rates and another new stress test to be introduced in the new year, this time aimed at low- ratio mortgages that don’t require insurance, the bank predicted.

The bank said t i ghter stress tests on mortgage l oans i ntroduced by t he Superintendent of Financial Institutions ( OSFI) will restrict as much as 10 per cent of prospective Canadian homebuyers, or roughly $ 15 billion in loans every year.

The OECD echoed that s e nti ment, noting t hat while various government programs have helped overheated real estate prices, the impact of a new tax on foreign buyers has diminished in Vancouver, suggesting that Toronto’s introduction of a similar tax could have a limited effect on prices.

“Provincial government measures have also temporarily slowed house price growth, but some – notably Ontario’s expanded rent controls – risk discouraging the supply of new housing. Macro- prudential policies will need to be tightened further if rapid increases in house prices and debt resume.”

In its report, the Bank of Canada once again listed cyber threats as another key vulnerability for Canada.

Poloz has said a cyberattack against the financial system i s a scenario that likely troubles him the most. In a recent interview, he said he was unsure how severe the fallout from such an event could be and he struggled to picture what it might look like.

“Cyberattacks do not respect borders: they can originate from outside Canada and be transmitted across the global network that financial institutions rely on to operate their businesses,” the report said.

The bank said it has been working with i ndustr y, international organizations and federal and provincial authorities to improve collaboration and policy- making to ensure rapid response and recovery from a cyber event.

An example could include a loss of connectivity or corruption of data within the payments system.

CYBERATTACKS DO NOT RESPECT BORDERS: THEY CAN ORIGINATE FROM OUTSIDE.