Posthaste: Canada’s world-leading debt could be its downfall in global downturn, report warns
Canada is a world leader in debt. This is no secret. The Bank of Canada has identified household debt as one of the biggest risks to our economy, and a number of international bodies have also raised red flags.
How bad is our debt? Total credit for the non-financial sector in Canada as a proportion of GDP was 305.7% in the second quarter of 2019, according to the Bank for International Settlements. That’s higher than the average of Canada’s economic peers at 272.3%. Since 2008, that debt to GDP ratio has risen 32.5%, compared with an average rise of 13.8% in other advanced economies.
Why is it so high? The study’s author Philip Cross says one of the main reasons is ironically because our banking system and “borrowing reputation” escaped largely unscathed from the Financial Crisis. As a result debt levels never fell in Canada as they did in other countries, while historically low interest rates led to a steady increase in borrowing.
Households led that “borrowing binge” with debt rising to 100.3% of Canada’s GDP, the highest of any nation except Denmark (115%) and nearly twice the G20 average of 59.5%. (In the United States it’s 75%).
A growing number of bankruptcies is another disturbing trend. In the third quarter of 2019 insolvencies rose 14.5% from a year earlier. “If households already are having trouble managing their record debt levels when employment is high and interest rates low, these difficulties will multiply as the global economy continues to decelerate,” Cross wrote.
Cross said if exports slump in a global downturn, dominos would fall. “Lower corporate earnings from exports would lead to job cuts and falling household income, in turn squeezing government revenues. Falling domestic demand would reinforce lower export earnings.”
On the bright side, Cross says Canada’s debt problem is unlikely to trigger a banking crisis because of how our system is structured and financed.
Here’s what you need to know this morning:
Bank of Canada deputy governor Paul Beaudry to give a speech on monetary policy and financial vulnerabilities in Quebec
Senior officials from Global Affairs Canada testify in Ottawa before the House of Commons Special Committee on Canada-China Relations
Heritage Minister Steven Guilbeault will discuss the current state of the screen-based industries and his vision for the future of Canadian content creation at the Prime Time 2020 conference in Ottawa. Bell Media president Randy Lennox and CBC CEO Catherine Tait take part in a panel discussion about the future of Canada’s public and private broadcasters
Cenovus CEO Alex Pourbaix to announce in Calgary multi-year investment in Indigenous communities near the company’s northern Alberta oilsands operations
CIBC hosts 23rd annual Western Institutional Investor Conference in Banff, Alberta. CN Rail CFO Ghislain Houle speaks Rod Phillips, Minister of Finance, will release Ontario’s 2019-20 Third Quarter Finances
Premier Doug Ford will deliver remarks at the 2020 Canada 360 Economic Summit in Toronto
Wet’suwet’en hereditary chiefs, B.C. Civil Liberties Association, and Union of BC Indian Chiefs hold a news conference about a policy complaint filed with the Civilian Review and Complaints Commission about RCMP actions at a checkpoint near the Coastal GasLink work site in Vancouver
Amazon.com Q4 conference call
Notable earnings: Open Text, Verizon Communications, Resolute Forest Products
Today’s Data: U.S. GDP
Canadian dealmaking rebounded in 2019, but as the chart below shows didn’t quite make the records of 2017. Deals gained 12% in 2019 from the year before, with issuers selling $402.1 billion in debt and equity, the latest edition of FP Dealmakers reveals today. And the top dealmakers are … RBC Capital Markets once again was top financier with 248 deals totalling $61.6 billion in debt and equity. TD Securities was second with 180 deals totalling $46.9 billion and in third place was BMO which also worked on 180 deals but raised $41.7 billion. For all the stories and the data go here FP Dealmaker 2020