OTTAWA — 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.
The Statistics Canada report came one day after the Bank of Canada cautioned that historic growth in consumer debt — fueled 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 speech in London.
The central bank — along with the International Monetary Fund and other nation-lending organizations — has repeatedly warned that any adverse shock to the economy could push Canadian household balances deep into negative territory. Most affected would be those who have borrowed above their ability to meet mortgage payments in the event of a real-estate crash.
“As the average household income growth slows, we can expect that economic shocks — such as foreign demand shocks that reduce demand for exports or changes in commodity prices that adversely affect a country’s terms of trade — will result in more frequent and longer periods of shrinking incomes,” Wilkins said.
The Bank of Canada, led by governor Stephan Poloz, and Finance Minister Bill Morneau have said record consumer debt burdens and the housing boom in Vancouver and Toronto present a major risk to the country’s economy.
“Because there’s so much debt, the Bank of Canada can’t raise rates very quickly, or to very high levels.”
Full article: Canada’s household debt is now bigger than its GDP, for the first time (Financial Post)