Rising household debt could be drag on long-term growth

CMHC warned that steady climb of household debt-to-GDP level has put Canada’s long-term economic growth prospects at risk.

Even debt-free Canadians could eventually feel a pinch from someone else’s maxed-out credit cards, suggests research presented to senior officials at the federal housing agency.

Canada Mortgage and Housing Corp. board members received an update in March on the country’s credit and housing trends.

The presentation contained a warning: the steady climb of the household debt-to-GDP level had put Canada’s long-term economic growth prospects at risk.

The document pointed to a study that argued household debt accumulation eventually hampers economic growth over the longer term, eclipsing the nearer-term benefits of consumption.

The strong expansion of household spending, encouraged by a prolonged period of historically low borrowing rates, has created concerns over Canadians’ record-high debt loads.

It has also been a major driver of economic growth.

The Canadian Press obtained a copy of the CMHC presentation via the Access to Information Act. It was included in a “confidential” memo to deputy finance minister Paul Rochon.

Citing international research, the CMHC presentation points to an estimate that says a one percentage point increase in household debt-to-GDP tends to lower growth in a country’s real gross domestic product by 0.1 percentage points at least three years later.

The calculation, published in a January study by the Bank for International Settlements, was based on an average produced from the data of 54 countries from 1990 to 2015.

“Our results suggest that debt boosts consumption and GDP growth in the short run, with the bulk of the impact of increased indebtedness passing through the real economy in the space of one year,” said the BIS report.

“However, the long-run negative effects of debt eventually outweigh their short-term positive effects, with household debt accumulation ultimately proving to be a drag on growth.”

An accompanying chart in the CMHC presentation showed that between 2010 and 2016 Canada’s household debt-to-GDP level rose by more than five percentage points. The household debt-to-GDP ratio increased from almost 93 per cent to just over 101 per cent at the end of 2016, Statistics Canada says.

A reduction of even 0.1 percentage points in the country’s GDP can have an impact. For example, Canada saw year-over-year growth in real GDP last year of 1.3 per cent.

The chart listed eight developed countries and ranked Canada second, behind Australia, for having the biggest increase in household debt-to-GDP level over the six-year period.

Just Posted

Trail company spearheads high-tech research project

Goal to develop a battery that is smaller and more powerful than what’s currently available

Nachos anyone?

Until Sept. 5, the East Trail concession is open 7 days a week from 11 a.m. to 7 p.m.

Grande Praire Storm rolls into Trail for two-game set vs Smoke Eaters

The Trail Smoke Eaters kick off their exhibition season this weekend at Cominco Arena

‘Feast on a Plate,’ Saturday in downtown Trail

incrEDIBLE fundraiser for Farmers Market Nutrition Coupon Program

Rossland Arena Society raising money for ice-maker

Society hopes to collect $35,000 for its share of a new chiller for the arena

Ethnic media aim to help maintain boost in voting by new Canadians

Statistics Canada says new Canadians made up about one-fifth of the voting population in 2016

Speculation tax forces sale of Greater Victoria’s iconic ‘Tulip House’

Bob and Jan Fleming selling their retirement home famous for its thousands of tulips

New police force in Surrey must avoid VPD, RCMP errors made in Pickton case: Oppal

Boots are scheduled to be on the ground by spring 2021

Man at centre of dropped HIV-disclosure case sues province and 10 cops

Brian Carlisle of Abbotsford says Mission RCMP defamed him and were ‘negligent’ in their investigation

Conan turns to the Property Brothers for tips on buying Greenland

Jonathan Scott suggests removing glaciers and mountains to bring in ‘more natural light’

Forests minister visits B.C. town rocked by multiple mill shutdowns

A third of Mackenzie turns out for rally, not much to cheer about

NDP bring Green New Deal to the Kootenays

MPs Wayne Stetski and Peter Julian held climate change talks in Nelson, Cranbrook and Revelstoke

B.C. sockeye returns drop as official calls 2019 ‘extremely challenging’

Federal government says officials are seeing the same thing off Alaska and Washington state

Most Read