Canadian Household Debt Has Grown Over 49% Faster Than GDP Since 2005

Canadian real estate prices aren’t the only thing outpacing growth in the rest of the G7, so is debt. New data from the International Monetary Fund (IMF) shows the Canadian household debt to GDP ratio reached a new record high in Q1 2020. The data shows a clear pattern of rapid expansion of the indicator since 2005. This means GDP growth is being driven by credit expansion. The ratio of household debt is not just at a new record, but smashes record levels seen in the US before the Great Recession.

Household Debt To GDP

Household debt to gross domestic product (GDP) is one of the key indicators for the economy. Household debt is outstanding credit incurred by households, primarily mortgage and consumer debt. Gross domestic product (GDP) is the value of finished goods and services produced during a period. By comparing the ratio, we can see how debt moves in relation to GDP.

By looking at how this trend evolves over time, we can see how much an economy has been leaning on debt for growth. If the ratio rises, it means new credit is being issued faster than GDP is growing. If the ratio falls, it means GDP is growing faster than household debt is growing. Since debt is future income used today, it’s also borrowed future consumption. When pulling forward consumption, you eventually repay it. This results in slower economic growth. You can delay repaying it by trying to pull even more future growth, but it just creates a larger drag later.

Canadian Household Debt To GDP Reaches New Record High

New data released this month shows Canada reached a new record high for household debt to GDP this year. The ratio hit 101.9% in Q1 2020, an increase of 1.2% from the same quarter a year before. From Q1 2005, a critical period for how countries handled the household debt, the ratio increased 49.8%. Yes, household debt grew nearly 50% faster than GDP across Canada. To say Canada leaned on debt fueled economic growth is a bit of an understatement.

Canadian Household Debt To GDP Ratio

The ratio of household debt to gross domestic product (GDP) in Canada and the US.

Source: IMF, Better Dwelling.

Canadian Debt To GDP Is Higher Than The US Before The Great Recession

To contrast, this kind of debt growth is even bigger than the kind seen during the US housing bubble. The US household debt to GDP ratio reached 77.2% in Q1 2020, up 1.7% from the same quarter last year. While the 12-month growth is a little faster, household debt is down 12.6% from Q1 2005. The US peaked at 99.82% in Q1 2008, and then slid until 2019 – when it finally bottomed at 75.935 in Q2. American households did this through a combination of deleveraging, and GDP growing faster than debt.

Canadian Household Debt To GDP Ratio Change

The percent change in the ratio of household debt to GDP in Canada and the US from 2005 levels.

Source: IMF, Better Dwelling.

Canadian GDP has grown much faster than US GDP over the past few years, but it’s different growth. American GDP growth has largely been driven by productive increases, not household debt. To contrast, Canada has been leaning on household debt, not unlike the US did before the Great Recession. Borrowing future growth works and leads to impressive numbers, until it doesn’t. Eventually the economy gets the tab for the party it threw.

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  • Li Gongfu 4 years ago

    Buy a house. The government will make sure it goes to 200%, so the value of houses keeps rising. Then there’s going to be a bazillion years of no growth.

    • Ethan Wu 4 years ago

      They’ll also need interest rates to go to -20%.

  • Trader Jim 4 years ago

    It’s funny to look at the chart and see it coming down in 2018, right when all of the prices went into the stratosphere, then rapid expansion of household debt propping prices up.

  • Marc 4 years ago

    Apple just passed $2 trillion market value. In the same time as Canada built a bubble, America is building companies with market caps bigger than our GDP.

    • Rob 4 years ago

      Don’t forget you can purchase the new 5g IPhone with your HELOC 😀

  • Scott MacKinnon 4 years ago

    So if we aren’t going to go the traditional way and sell our resources, and we aren’t going to work to create wealth, how will the Canadian economy keep growing ?

    • alvi 4 years ago

      “Wealth of Nations’ is where the answer lies not Das Capital that is how we are going to continue growing unless goverments destroy the will to innovate, work,save and invest throug excessive taxation, borrowing and bureacracy

      • Oldguy2 4 years ago

        Continue growing? Where did you get that from? Per capital GDP is falling,
        Good luck.

      • Scott MacKinnon 4 years ago

        So how come all the proposed solutions seem to be on the Das Capitale side of it?

        • alvi 4 years ago

          Very interesting question and here is something to consider”
          Because Karl Marx is much more pervasive in institutions of “higher” learning than Adam Smith. Even with the general public Marx is much more known than Smith
          I think it has to do with evolution. zero-sum game mentality emerged in hunter- gather(plunderer?) societies and still persists today, drowning out the postive-sum(or mutual benefit) ethos that emerged with development of the market economy.
          As result, it is easier for a self-serving politician to convince voters that they are being screwed by society and that they have the answers.

          • Itchy Bear 4 years ago

            I think a significant part of the problem is people not knowing the difference between Das Capitale and the Communist Manifesto. It means the conversation is diluted by idiotic and meaningless critiques suggesting Adam Smith believed in full unfettered capitalism, and ignores the last century of Keynes holding up better than Friedman (or Hayek if you’re in the Republican pseudo-intelligentsia crowd)

    • Kolf 4 years ago

      What you said makes no sense, so we cant sell resources so we create a housing bubble?

      Wouldn’t we have more resources per capita if stop immigration? Hence our relative prices for resource should be a lot lower right? For resources to turn into wealth we need knowledge workers. Housing bubbles cause people with options to leave first since our pay is not increasing. So it becomes are downward spiral.

  • Bill 4 years ago

    immigration. little Potato(Trudeau ) said that there will over 100M population in near future to help grow our economy.

    His whole family, starting from Dad is dedicated to working on this kind of Ponzi schema.

    • alvi 4 years ago

      I love immigration, i enjoy the variety and drive they bring,not going to betray my parents who made the most of what they were given and did not complain about how society was holding them back. while be gracious and generous at the same time.

    • IamGroot 4 years ago

      100% agree. Except the pandemic really f’d things up for him and now he is rushing to implement massive change. He potentially lose confidence of the house and a new election will be called.

  • Oldguy2 4 years ago

    I have been fascinated by the ongoing arrogance of Canadians, who continue to boast about how they survived the recession of 2007-10 because the dumb Americans allowed a giant housing bubble to form, and when it burst there was a huge mess, but Canada was much too smart to allow it to happen here.
    Does anyone understand that Canada has put in place exactly the same structures that caused the US housing bubble? Lax lending standards, interest rates near zero, a federal government that continues to support the bubble, and banks who will lend till the cows come home, knowing that the crooked politicians will bail them out. We have it all.
    The ultimate arrogance is that everybody thinks that the outcome here will be different.

  • C.D.R. 4 years ago

    WOW … Canadians are truly financially illiterate to be piling on so much debt.

    It’s compounded by FOMO in real estate because the industry lobbyers are powerful and have great marketers.

    When the bubble pops, not if, Canadians will experience a worse recovery than the late 1980s peak, which took 20 years to reach the same non-inflation adjusted values (30 years to reach inflation adjusted values).

    Currently, Canadian R/E prices are at least 25+% over-valued, and even worst in metro cities like Vancouver, Toronto and Montreal where lots of money laundering, speculation, artificial demand from Airbnb, etc that are at least 40+% over-valued.

  • rust in pease 4 years ago

    i dont think people realize how much money is illegally laundered. I come from a very small corrupt country. A well knows political goon/murderer just siphoned 250M USD into Canada and bought …take a wild guess. This is a criminal from a small country multiply that on the global scale(looking at you china) and then you will realize that prices here will outstrip GDP growth. Until the government will stop this joke our real estate market will be a playground for the global rich. When the trouble in Hong Kong started i knew prices were going to sky rocket again and like clockwork they started going up in Chinese laundering hotspots like Markham, north york etc

  • Fight Back 4 years ago

    Look guys the Canadian government is hell bent on grinding up young families and transferring their blood to fuel this real estate bubble.

    Do they care that young families can’t afford a decent place to live without going into crazy debt? Why aren’t the victims speaking out?

    Young Canadians are not very bright they dont even realize what is happening to them. The government care more about teal estate paper wealth than you.

    Young people, let me ask you this, is the system really working for you? Time to change this predatory system.

  • Anton Pavar 4 years ago

    Would be interesting to know how many who ”differed” are on CERB… I would ”assume” that most people who ”differed” are actually back at work by now, be it remotely or on-site… Most on CERB are in the resto/bar, retail and tourism industry… not the highest paying type of jobs IMO, so not many mortgage holders in those industries…

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