71142
Canada’s Rising Household Debt Hurting Growth Prospects
Canada’s Rising Household Debt Hurting Growth Prospects

Canada’s Rising Household Debt Hurting Growth Prospects

Canada’s Rising Household Debt Hurting Growth Prospects

Even debt-free Canadians could eventually feel a pinch from someone else’s maxed-out credit cards, suggests research presented to senior officials at the federal housing agency. Canada Mortgage and Housing Corp. board members received an update in March on the country’s credit and housing trends.
It contains a warning: the steady climb of the household debt-to-GDP level had put Canada’s long-term economic growth prospects at risk, Canadian Press reported.
The document pointed to a study that argued household debt accumulation eventually hampers economic growth over the longer term, eclipsing the nearer-term benefits of consumption.
Strong expansion of household spending, encouraged by a prolonged period of historically low borrowing rates, has created concerns over Canadians’ record-high debt loads. It has also been a major driver of economic growth.
The Canadian Press obtained a copy of the CMHC presentation via the Access to Information Act. It was included in a “confidential” memo to deputy Finance Minister Paul Rochon.
Citing international research, the CMHC presentation points to an estimate that says a one percentage point increase in household debt-to-GDP tends to lower growth in a country’s real gross domestic product by 0.1 percentage points at least three years later.
The calculation, published in a January study by the Bank for International Settlements, was based on an average produced from the data of 54 countries from 1990 to 2015.
“Our results suggest that debt boosts consumption and GDP growth in the short run, with the bulk of the impact of increased indebtedness passing through the real economy in the space of one year,” said the BIS report.
“However, the long-run negative effects of debt eventually outweigh their short-term positive effects, with household debt accumulation ultimately proving to be a drag on growth.”
An accompanying chart in the CMHC presentation showed that between 2010 and 2016 Canada’s household debt-to-GDP level rose by more than five percentage points. The household debt-to-GDP ratio increased from almost 93% to just over 101% at the end of 2016, Statistics Canada says.
A reduction of even 0.1 percentage points in the country’s GDP can have an impact. For example, Canada saw year-over-year growth in real GDP last year of 1.3%.
The chart listed eight developed countries and ranked Canada second, behind Australia, for having the biggest increase in household debt-to-GDP level over the six-year period.

Short URL : https://goo.gl/sz82nx
  1. https://goo.gl/SCMfuw
  • https://goo.gl/HuXqDH
  • https://goo.gl/QKiFbd
  • https://goo.gl/qfhHDP
  • https://goo.gl/3z1wT1

You can also read ...

ECB President Mario Draghi (L) and US fed chair Jerome Powell at the ECB Forum on Central Banking in Sintra, Portugal, June 20.
The world’s most-powerful central bankers warned that...
Consumer prices rose just 0.1% in May, down from a 0.3% gain in April.
Canada’s economy showed unexpected weakness in the second...
Brazil CB Holds Rate Steady
For the second consecutive time, the Central Bank of Brazil...
China Trade Surplus Shrinks
China’s trade surplus shrank markedly in the first five months...
Productivity in Japan’s manufacturing sector is high  but service sector has declined in recent years.
Japan is famous as a land of robots, but most of those...
Inflation rate forecast for the full year is averaged around 3.1%.
Saudi Arabia is so intent on changing its identity that today’...
Ukraine Shadow Economy Drops to 31% of GDP
Shadow economy in Ukraine dropped by 4% in 2017, to 31% of GDP...
Turkey Sees 22% Yearly Decline in FDI
Turkey attracted some $3.1 billion in net international direct...

Add new comment

Read our comment policy before posting your viewpoints

Trending

Googleplus