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

Request for 7.5 acre parcel defeated Oct. 11

County of Wetaskiwin council hears proposal didn’t meet LUB, MGA

County of Wetaskiwin gravel hauling rates getting boost

Councilors vote to increase haul rate from $0.149 to $0.186 per tonne km

Wetaskiwin RCMP inspector ‘not surprised’ with Crime Severity Index

Inspector puts Maclean’s ‘Most Dangerous’ feature into perspective

UPDATED Two dead after head-on collision near Millet

UPDATED Wetaskiwin RCMP investigating, one dies at hospital

Wetaskiwin Chamber luncheon cancelled Nov. 16

Bad weather, icy roads mean benefits talk rescheduled for January

VIDEO: Shoppers like self-checkout lanes at the grocery store, survey suggests

Grocery Experience National Survey Report suggests most grocery shoppers spend 32 minutes per visit

25% of Canadians still won’t say they use pot, survey says

Statistics Canada poll says Canadians on average were 18.9 years old when they first tried pot.

The latest advent calendar trend: Holiday cannabis

A Canadian company is giving people from coast to coast a new way to celebrate the Christmas countdown.

Ponoka’s Caleb Shimwell arrested after pursuit

Police allege that Shimwell rammed a police cruiser

731,000 Canadians going into debt to buy prescription drugs: UBC

Millennials and those without private coverage were more likely to borrow money

Pot users, investors need to be vigilant at Canada-U.S. border

U.S. authorities say anyone who admits to having used pot before it became legal could be barred

No deal in sight: Canada Post warns of delivery delays into January

Union holds fifth week of rotating strikes as both sides remain apart on contract negotiations

Police looking into two more incidents at private Toronto all-boys’ school

Police and the school have said two of the prior incidents involved an alleged sexual assault

Most Read