Rising household debt could be drag on long-term growth

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.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Just Posted

Alberta has 3,651 active cases of COVID-19.  (File photo)
750 new COVID-19 cases identified in Alberta Sunday

Central zone currently has 1,182 active cases of the virus

Facebook/ The Open Door 24/7 Integrated Response Hub- Wetaskiwin.
Wetaskiwin residents show support for 24/7 Integrated Response Hub

Wetaskiwin residents and City Council members showed support for Hub with positive signs.

25-year-old Rachelle Okrusko has been missing since Jan. 12, 2021. Photo provided by Wetaskiwin RCMP.
Wetaskiwin RCMP looking for missing woman

25-year-old Rachelle Okrusko has been missing since Jan. 12, 2021.

The Pfizer-BioNTech vaccine deliveres to Canada are being delayed because of complications at their European distribution facility. THE CANADIAN PRESS/Nathan Denette
Delays of Pfizer vaccine delivery to impact Alberta’s vaccination plans

Alberta has administered 74,000 doses of the COVID-19 vaccine so far

A scene from “Canada and the Gulf War: In their own words,” a video by The Memory Project, a program of Historica Canada, is shown in this undated illustration. THE CANADIAN PRESS/HO - Historica Canada
New video marks Canada’s contributions to first Gulf War on 30th anniversary

Veterans Affairs Canada says around 4,500 Canadian military personnel served during the war

Conservative Leader Erin O’Toole holds a press conference on Parliament Hill, in Ottawa on December 10, 2020. THE CANADIAN PRESS/Sean Kilpatrick
No place for ‘far right’ in Conservative Party, Erin O’Toole says

O’Toole condemned the Capitol attack as ‘horrifying’ and sought to distance himself and the Tories from Trumpism

A passer by walks in High Park, in Toronto, Thursday, Jan. 14, 2021. This workweek will kick off with what’s fabled to be the most depressing day of the year, during one of the darkest eras in recent history. THE CANADIAN PRESS/Chris Young
‘Blue Monday’ getting you down? Exercise may be the cure, say experts

Many jurisdictions are tightening restrictions to curb soaring COVID-19 case counts

A health-care worker prepares a dose of the Pfizer-BioNTech COVID-19 vaccine at a UHN COVID-19 vaccine clinic in Toronto on Thursday, January 7, 2021. THE CANADIAN PRESS/Nathan Denette
COVID-19: Provinces work on revised plans as Pfizer-BioNTech shipments to slow down

Anita Anand said she understands and shares Canadians’ concerns about the drug company’s decision

Prime Minister Justin Trudeau listens to a question during a news conference outside Rideau cottage in Ottawa, Friday, January 8, 2021. THE CANADIAN PRESS/Adrian Wyld
Trudeau says Canada’s COVID vaccine plan on track despite Pfizer cutting back deliveries

Canadian officials say country will still likely receive four million doses by the end of March

(Via the Canadian Press)
Alberta monolith comes with message to save eastern slopes of Rocky Mountains

‘They deserve our attention. They warrant our protection. They are under threat’

blessing
Bentley Blessing Pantry continues to faithfully serve the community

‘We just wanted to make everyone aware that we are still here to serve you throughout this coming year.’

A Suncor logo is shown at the company’s annual meeting in Calgary on May 2, 2019. A worker is missing after a dozer broke through ice on an inactive Suncor tailings pond in northern Alberta.THE CANADIAN PRESS/Jeff McIntosh
Worker missing after dozer breaks through frozen tailings pond in northern Alberta

The worker was an employee of Christina River Construction

File Photo
‘You took away some real joy,’ Sylvan Lake Winter Village turned off after vandalism

Sometime during the night of Jan, 12 the light display at the pier was vandalized and damaged

Most Read