Canadians might be running out of reasons to borrow cash, as total credit growth dips. Bank of Canada (BoC) data shows combined credit growth of businesses and households reached a new high in November. Despite the large number, the rate of growth is falling to levels not seen since the great recession.
Credit Growth
Credit growth is an important sign of economic confidence, without actually asking people. In fact, some analysts prefer it to confidence surveys, since it is behavior in action. Surveys reflect self-perceived behavior – which has limited use. Would you trust economic views based on a self-assessment of your neighbor? Exactly.
The basics are straightforward – growth is a good, shrinking is bad, with a few exceptions. When credit growth accelerates, it’s a sign that households and businesses expect the economy to grow. When it shrinks, it’s a sign that households and businesses don’t see growth, or are tapped out. After all, most credit is borrowed and extended when people think they can pay off their bills. People hoard their income and cash, when they aren’t overly confident in their future… or their bills are so high, servicing costs don’t leave a lot. Got it? Let’s dive into these numbers.
Canadian Credit Growth Slows To The Lowest Level Since 2010
Canadians aren’t all that keen on borrowing right now, as credit growth dips. Institutional lenders held $4.50 trillion in outstanding debt in November, up 0.22% from a month before. This works out to a 4.41% increase compared to last year. The rate of growth is now the lowest pace since October 2010. Surprisingly, consumer credit growth is picking up, while business growth is now falling.
Canadian Total Credit Growth
The 12-month percent change in the amount of outstanding business and consumer credit, combined.
Source: Bank of Canada, Better Dwelling.
Household Credit Growth Rises To The Highest Level In A Year
Canadian households aren’t borrowing like they used to, but it’s picking up. Household credit represented $2.25 trillion of the total in November, up 0.29% from a month before. Compared to the same month last year, the outstanding balance is 3.88% higher. The numbers are off of multi-decade lows for growth, but it’s the highest rate since June 2018. Borrowing is seeing a mild recovery thus far, driven by a return to mortgage borrowing.
Canadian Total Credit
Total debt held by Canadian households, in Canadian dollars.
Source: Bank of Canada, Better Dwelling.
Canadian Businesses Are Borrowing At The Slowest Pace In Years
Canadian businesses are shifting expectations, and slowing their borrowing. Businesses represented the other $2.24 trillion of outstanding credit in November, up 0.16% from a month before. Compared to the same month last year, this represents a 4.93% increase. This is the lowest level of growth since June 2016.
Canadian Total Credit Growth
The 12-month percent change in the amount of outstanding business and consumer credit.
Source: Bank of Canada, Better Dwelling.
The low credit growth may not seem like a big deal when looked at separately. Both indicators have had recent prints where they’ve seen lower growth, and it wasn’t a big deal. However, both indicators are showing very low growth at the same time. This is leading to unusually low combined credit growth, rarely seen outside of regional recessions. The issue is likely indicative of a bigger issue on the horizon.
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Chart 3. Watch for the pinch. 🦞
What does that mean?
Important point for next time: Most credit growth for business and households are mortgages. The whole economy is banking on real estate right here.
Organized real estate needs the credit impulse to continue in order to keep the party going. Hence the effort to kill B20.
SH, sadly, they’ve already destroyed any opportunity low to middle classers would have had to join in the party by putting in the restrictions. Now’s the time the gov should keep it on, once house prices have already skyrocketed. Now’s the time that buying a property could hand-cuff so many. The houses can’t keep increasing at the paces they have been increasing.
There’s still likely some money to be made, but not like over the last 5 years. It’s sad how the gov implemented this, arguing it was to help people not exceed their boundaries. In the end, all it did was to stop those who could have taken advantage of the steep house price increases from ever getting the chance to do so over the last 2 years. If the gov decided to do what you say (take out the restrictions) just to appease the realtor industry (FIRE industry), then I can see that being a giant factor in bringing the whole system down.
I cannot wait until buying a house is done electronically. It should have already been put into place (widely used by now). It will be nice not having these exorbitant costs tacked on to a house purchase. Literally, a monkey could sell a house in these times. And due to it’s cuteness, might even get more clientele than the average realtor.