The government data agency Statistics Canada reported Thursday (June 20) that Canadians’ household debt to income ratio had lowered for the second consecutive quarter.
In a financial note on its website Canada’s largest bank RBC calls the change “a second consecutive modest decrease”.
(Graph: Statistics Canada)
The Bank of Canada has warned numerous times about the dangers of high household debt to income ratios. In an analysis titled “What Explains Trends in Household Debt in Canada?” the Bank wrote:
“While borrowing can enhance welfare, recent international experience shows that excessive indebtedness and looser lending standards can also make households more vulnerable to adverse shocks and increase risks to the financial system. The rise in indebtedness in the United States was heavily influenced by relaxation of mortgage underwriting standards that made it easier for riskier households to enter the housing market…”
In April, former Bank of Canada Governor Mark Carney warned the Bank could raise interest rates if household debt did not go down.
The Bank’s new Governor Stephen Poloz warned on Wednesday (June 19) “…our recovery has been primarily driven by higher household spending, while exports have lagged behind… What needs to happen next is for export momentum to build and business investment to recover while the household sector settles into a more balanced and sustainable growth path.”
More information:
Statistics Canada – National balance sheet and financial flow accounts, first quarter 2013 – here
RCB – Canadian household net worth rose in the first quarter of 2013 to a new record high – here
Wall Street Journal – Canada 1Q Household Debt Down For Second Time From Record High – here
Bank of Canada – What Explains Trends in Household Debt in Canada? – here
Stephen Poloz speech – “Reconstruction: Rebuilding Business Confidence in Canada” – here
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