Canadian household debt compared with disposable income jumped to a record in the second quarter, the statistics agency said, heightening concerns borrowing will weigh on the country’s economic outlook.
The ratio grew to 165.8 percent in the second quarter, while the first-quarter figure was revised to 164.2 percent from a previous 154.3 percent, Statistics Canada said today from Ottawa. Today’s report made historical revisions back to 1990, which raised the debt ratio in recent years due to a higher estimate of credit-market debt and reduced income.
Canadian policy makers have warned that a surge in household debt is among the biggest threats to the Canadian economy, and may prompt Bank of Canada Governor Mark Carney to raise borrowing costs. Canada is at risk of a second recession since 2009 because record debt loads may force households to curb spending, according to a Sept. 6 Moody’s Analytics report.
“It’s worrisome,” said Mark Chandler, head of fixed-income strategy in Toronto at Royal Bank of Canada’s RBC Capital Markets unit. “You just have to be more committed to take the opportunity to raise rates when you have the window.”
U.S. household debt as a share of disposable income was at 140.1 percent in the second quarter.
Carney has said Canadians should make sure their debt loads remain affordable because interest rates will eventually rise. He’s kept his main interest rate at 1 percent for more than two years, the longest pause since the 1950s, and has said he may tighten policy as the economy moves toward full output.
The ratio of credit market debt to disposable income rose to 163.4 percent from 161.8 percent in the first quarter, as credit market debt grew by 1.8 percent and disposable income by 1 percent.
The equity held by consumers as a percentage of real estate value was little changed at 69.2 percent in the second quarter, according to the report.
National net worth rose 1.1 percent to C$6.77 trillion ($6.91 trillion) in the quarter, Statistics Canada said.