Bank of Canada Data Shows Why Household Debt Is The Biggest Vulnerability

Just how much did Canada lean on household debt to grow the economy over the past few decades? A lot. Bank of Canada (BoC) crunched the numbers, and they show household debt accelerated faster than any other segment of debt. The distribution of debt makes Canadian households one of the most vulnerable of the advanced economies.

Canadian Household Debt Is Now At 100% of GDP

Canada’s credit growth has been largely a household credit story. In 2000, household debt was just 58% of GDP. By the end of 2019 Q4, that number has hit 100% of GDP. This is amongst the highest of advanced economies. To see how much the Canadian economy has leaned on household debt, the BoC contrasts it to the growth of non-financial and government debt.

Canadian Debt As A Percent of GDP

Canadian debt as a percent of GDP for households, non-financial corporations, and government. The BoC used 2007 as a benchmark for insight into the shift after the Global Financial Crisis.

Source: Stat Can, BoC, Better Dwelling.

Businesses Borrowed A Lot Less Than Households

Canada’s non-financial corporations didn’t take out nearly as much new debt as Canadian households. The segment saw non-financial corporate debt at 52% of GDP in 2000 Q1. By the end of  2019 Q4, the segment’s debt reached 68% of Canada’s GDP. Non-financial corporate debt increased at less than half the pace of household debt.

Canadian Government Debt Mostly Scaled With GDP

We all know the government has a spending problem, right? Well, it’s not nearly as bad as Canadian households. In 2000, government debt was 81% of Canada’s GDP. By the end of 2019, this number reached a WHOPPING… 83% of GDP. In other words, government spending has mostly scaled with the growth of GDP. Household debt also grew at nearly 30x the rate of government debt.

Caandian household debt expanded very rapidly, absorbing most downturns over the past two decades. This limits the ability to respond to the latest downturn, and makes a bet for a consumer bounce a little more unlikely. You can only saddle a household with so much debt, before market based lenders begin to pull back. This is something already being seen in the private mortgage market.

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  • Jason Chau 4 years ago

    This is why the government needs to helicopter money. Households have already borrowed their futures, and in the case of reverse mortgage debt – their children’s futures.

    It’s not feasible to increase household debt another 30% in the next decade, so they’re going to do it with government debt.

    • Ethan Wu 4 years ago

      They’re going to try doing it with consumer debt. Although there’s an important note hear people should pick up on.

      The Bank of Canada used to talk about keeping rates low to stimulate borrowing.

      Now they talk about keeping rates low to make sure people can continue to pay their bills. This isn’t a recent trend either, it’s been a consideration for the second half of Poloz’ term.

  • Ed Kolop 4 years ago

    Compounding issues. Consumer debt is needed to drive commercial real estate revenues, and bank revenues. Those happen to be some of the biggest positions Canada’s pensions are taking losses on right now.

  • Manoj 4 years ago

    We see head lines such as “Businesses Borrowed A Lot Less Than Households” but no one questions why?

    The reason businesses borrowed less. Banks did not want to lend to busineses, because they saw them as high risk!! Because small busineses can also go bankrupts unlike “too big to fail busineses” which are kept on life support systems by the taxpayers through the central bankers non other than the BoC.

    Instead, the banks were and still only prepared to lend new and existing home owners and speculators. They will approve anyone who is broke but has a 5% down payment and who would qualify for a loan guarantee by non other than the tax payer funded CMHC. So the banks had ZERO risk to their shareholders!

    WIN WIN for the banks!

    And WIN WIN for the broke home owners, speculators and all those landlords who have negative cashflows and have been tricked into thinking house prices only go up so you can’t loose, worst case the government will bail them out – but why does anyone never ask who is the government?? Its the tax payers!!

    • Manoj 4 years ago

      Yes, indeed. The CPPIB was one of the biggest investor in the failed 102 year retailer “Neiman Marcuss” which has filed for bankruptcy. There goes the millions of $$ of hard working Canadians who are relying on CPP pensions to pay the guaranteed old age pensions after having contributed for their entire lives… These pension funds are gambling with peoples savings? In CPPIB’s case they have over $100-billion invested into private equity which has taken a massive hit and I will not be surprises if today that investment portfolio is not even worth even 40%.

      These pension funds have to take unnecessary risks of peoples money because the Central Bankers such as Mr Poloz and Mr Powell at the US Fed and their PhD economists who have slashed the savings rates to zero for over 10 years when Pensions funds were inacted they were designed to grow by a minimum of 7.5% compounded interest rate in order to pay for the liabilities to the public.

      Just think, if they has the brains and had invested all those $100 Billion into building affordable housing for the hard working Canadians across the country, the rental income the pensions would be more than sufficient to guarantee the liabilities of the Canadian public. ZERO Risk!!

  • Mike 4 years ago

    It will get interesting going forward if unemployment remains high for an extended period.

    I kinda feel Canada has been running a pyramid scheme the last 20yrs when it comes to immigration.

    Basically Canada was able to cherry pick educated and rich immigrants, they come to Canada with a clean balance sheet and get good jobs.

    As a result, they can pay taxes, and leverage up with debt in the form of mortgages, car leases, credit card, unsecured loans, lines of credit etc…

    It might be hard to rely on this going forward if unemployment is double digits .

  • Rob 4 years ago

    So some guy ate a bat in China and now I don’t have to hear about everybody’s million dollar house 🤔
    God bless bats 🙏😀

  • Darren Stone 4 years ago

    I’m buying the dips into US dollars. Gold as well.

Comments are closed.