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

Volunteers risk their lives to save others

SAR training prepares them for the job

Many moving parts to economic development

Tourism is only part of the answer

Window art a sign of the season

B.C. artist paints windows across the province

Get all your stocking stuffers, and the stockings, too

Beta Sigma Phi Christmas Craft Sale returns

VIDEO: Fraser Valley Bald Eagle Festival

This year’s event featured six stops, including viewing points and activity centres.

Convicted child sex offender’s sixth lawyer resigns before sentencing

One time school board candidate Corey Neyrinck case delayed in BC Supreme Court yet again

ICBC overbilling for crash repairs not the problem, dealers say

Collision repair shops reject union claim of inflated costs

TransLink mulls distance-based fares, low-income discounts

Metro Vancouver transit agency launches final phase of fare review

B.C. sport groups to address child sex abuse in sports

viaSport is organizing a full day of education in association with Canadian Centre for Child Protection and the Coaching Association of Canada.

Man, woman charged in Burnaby Starbucks killing

Manslaughter charges approved after man assaulted last summer in what police call targeted attack

Report sets exercise guidelines for young kids, including ‘tummy time’ for babies

Kids aged one to four should get at least three hours of physical activity throughout the day

Stampeders return to Grey Cup with 32-28 win over Edmonton Eskimos

The Stampeders will face the Toronto Argonauts next Sunday in Ottawa for the title

Chilliwack man draughts finalist beer recipe in national competition

Eddy Factor is one of eight Canadians who’s won a finalist position in beer maker Innis & Gunn’s Imagine & Gunn competition.

Most Read