BORROWING BOOM
Debt outpaces national GDP
The insatiable appetite of Canadians for cheap credit has been well-documented since the Great Recession, as consumers piled on debt by ever-increasing numbers.
Now, household borrowing has reached a new milestone, of sorts.
For the first time, the level of debt held by Canadians has exceeded the country’s gross domestic product as the red ink spilled over in the second quarter to 100.5 per cent of GDP, up from 98.7 per cent during the previous three-month period.
“This indicator is useful in analyzing the debt level of the household sector relative to other sectors in the Canadian economy or for international comparisons,” Statistics Canada said in email to the Financial Post.
“It represents a scaling of the sector’s debt to a common denomi- nator. In addition, GDP is a broad measure of an economy’s ability to service debt.”
At the same time, Statistics Canada said the ratio of credit market debt to disposable household income climbed to 167.6 per cent between April and June, from 165.2 per cent in the first quarter of the year.
Total credit market debt was $1.97 trillion at the end of the second quarter, while consumer credit alone reached $585.8 billion and mortgage debt stood at $1.29 trillion.
Net worth of households increased 1.9 per cent in the second quarter to $9.84 trillion, boosted by a gain in real estate. Household net worth on a per-capita basis was $271,300.
‘The issue is not debt, it’s income,” said Benjamin Tal, deputy chief economist at CIBC World Markets.
“Debt is rising by about 5.2 per cent year-over-year since mid2015. But historically speaking, that’s not very high. So, we’re not seeing an acceleration at the rate of which households are accumulating credit.”
“Given that interest rates are so low, this is an environment you’d expect consumer credit to rise to the sky — and it’s not. The debt-to-income ratio is not because of the debt accumulating very fast, but rather the income is not rising fast enough to compensate (borrowers).”
The Statistics Canada report came one day after the Bank of Canada cautioned that historic growth in consumer debt — fuelled by near record-low interest rates coming out of the 2008-09 global financial and economic collapse recession — would eventually become unsustainable.
Low interest rates “encouraged growth in household credit, leaving many highly indebted,” said Carolyn Wilkins, senior deputy governor at the Bank of Canada, in a speech in London.