Rising household debt could be drag on long-term growth

CMHC warned that steady climb of household debt-to-GDP level has put Canada’s long-term economic growth prospects at risk.

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.

The presentation contained a warning: the steady climb of the household debt-to-GDP level had put Canada’s long-term economic growth prospects at risk.

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.

The 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 per cent to just over 101 per cent 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 per cent.

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.

Just Posted

Field scouting in July

Field scouting can lead to more successful crop production

Two wooden play structures in Ponoka set to be removed

No immediate plans to replace playground equipment

Sink hole from rain causes sewer line issue

Affected residents can now safely flush toilets

Wind, wet lodging crops in fields

By Ponoka News Staff The rain may help with moisture concerns but… Continue reading

Alder Flats 4-H Multi Club Report

4-H kids visited aerial park in Edmonton

Fashion Fridays: 5 casual summer dress styles

Kim XO, helps to keep you looking good on Fashion Fridays on the Black Press Media Network

A year later, ceremony commemorates victims of the Danforth shooting

It’s the one-year anniversary of when a man opened fire along the bustling street before shooting and killing himself

Ottawa fights planned class action against RCMP for bullying, intimidation

The current case is more general, applying to employees, including men, who worked for the RCMP

Alberta judge denies B.C.’s bid to block ‘Turn Off the Taps’ bill

He said the proper venue for the disagreement is Federal Court

Buccaneers pillage Irish 36-0

Central Alberta bounces back after off week against Wolfpack

Sexual harassment complaints soaring amid ‘frat boy culture’ in Canada’s airline industry

‘It’s a #MeToo dumpster fire…and it’s exhausting for survivors’

How much do you know about the moon?

To mark the 50th anniversary of the first lunar landing, see how well you know space

Bashaw seed cleaning plant holds official opening

New facility operating well since January

Couple found dead along northern B.C. highway in double homicide

Woman from the U.S. and man from Australia found dead near Liard Hot Springs

Most Read