Canadian households are now so indebted, it exceeds the annual output of the economy. Statistics Canada (Stat Can) data shows the gross domestic product (GDP) printed modest quarterly growth in Q2 2021. The growth was dwarfed by household debt, which now exceeds the size of the country’s GDP. Economies with such large household debt loads are trading long-term growth for smaller short-term gains.
Canadian Households Hold Owe $2.53 Trillion In Debt
Canadian household debt is surging higher, even with relatively low consumer credit growth. Seasonally adjusted outstanding credit reached $2.53 trillion in Q2 2021. This is a 2.53% increase compared to the previous quarter. It was almost entirely driven by mortgage debt, which has now reached 68.7% of household debt. Mortgages haven’t represented such a large share of debt since the early 1990s bubble.
Canadian Household Credit and GDP
The outstanding balance of Canadian household credit and gross domestic product (GDP).
Source: Stat Can; BoC; Better Dwelling.
Canadian GDP Is Growing A Fifth Slower Than Household Credit
Canadian households are borrowing at a much faster pace than GDP is growing. GDP reached a seasonally adjusted $2.46 trillion in Q2 2021, up 1.92% from the previous quarter. Quarterly growth is about a fifth slower than household credit. As debt grows larger than GDP, an economy becomes more dependent on debt to grow.
Canadian Household Debt Is Now 102.9% of GDP
Canadian household debt is now larger than the country’s whole annual economic output. The household debt to GDP ratio hit 102.90% in Q2 2021, up from 102.28% the previous quarter. When this ratio increases, it means credit growth is stronger than economic growth.
Canadian Household Credit To GDP Ratio
The ratio of outstanding credit held by households to gross domestic product (GDP).
Source: Stat Can; BoC; Better Dwelling.
Reading this is a little messy due to the pandemic’s influence on data last year. Restricted trade in the first 2 quarters artificially pushed GDP lower. A ratio as high as we saw in Q2 2021 means a lot less in these circumstances.
Don’t confuse meaning less with irrelevant though — the general trend is present. Debt accumulation still outpaced GDP growth, and the economy borrowed future income. The percent reading for the ratio just hasn’t stabilized. It will no doubt do that at higher than pre-pandemic levels.
Credit growth is good until it reaches above a certain level of economic output. Once household debt to GDP passes 70%, every point the ratio rises is a drag of 0.3 points of long-term GDP growth. The impact can be delayed with more debt, but that’s borrowing even more future growth.
Canada is betting a lot on expensive real estate bringing in productivity. Usually, it’s the opposite, where surging productivity produces expensive real estate.
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Canada is a debt ponzi. It’s ramping up immigrants not because of some generous plan to the world, but because it masks the deterioration in output. Each person contributes less and less to the economy due to debt, as seen in the GDP per capita rating. Canada doesn’t publish it’s per capita ratings intentionally, due to the fact it would have shown a recession started in 2019.
so Canada is one-bazillion points lower on GDP. But at least the banks are playing a heck of a game, aren’t they?
I can’t believe banks make money on mortgages with almost no risk since taxpayers are willing to assume all of it.
Its disgusting.
A no-fail, win-win, money printing fraud of overbearing corruption by the elite class supported by ineptitude of every other citizen.
I know each dollar borrowed doesn’t equal direct GDP, but each home purchase drives a lot of GDP. Imagine what volume of output is driven by debt and leverage. I’d be willing to wager it’s around 50% at least.
This is why I see the threat of higher rates to be overblown because as bad of a position as Canada is in, it doesn’t have the freedom to that. Canada might see the US/CAD hit $1.50 before interest rates ever rise to 2% again.
Canadians whatever a Canadian is certainly have no qualms about putting themselves in debt until they drop both at a personal and government level Won’t end well that for sure
Response to Mortgage Guy
I think you are pretty close to the mark here. And none of this was discussed during the recent election. Amazing.
Probably worth considering is borrowing against ones overinflated equity, purchasing US equities, and waiting to repay in deflated dollars.
and the future? how do we compete with the world? what jobs will our children have? not difficult to see
this number is just a number… nothing really changed going from 98% to 102%
same crappy situation we were in…