Get 40% Off
🤯 This Tech Portfolio is up 29% YTD! Join Now to Get April’s Top PicksGet The Picks – Just 99 USD

Canada household debt-to-income ratio posts record fall in second quarter

Published 2020-09-11, 08:59 a/m
Updated 2020-09-11, 11:24 a/m
© Reuters. FILE PHOTO: Phase 2 of the reopening from the coronavirus disease (COVID-19) restrictions in Toronto

© Reuters. FILE PHOTO: Phase 2 of the reopening from the coronavirus disease (COVID-19) restrictions in Toronto

By David Ljunggren

OTTAWA (Reuters) - The ratio of Canadian household debt to income posted a record drop in the second quarter as expenditures fell and government aid programs helped bolster incomes, Statistics Canada said on Friday.

The ratio - which the Bank of Canada says is a key indicator of the stresses facing Canadians - dropped to 166.8% from a revised 171.7 percent in the first quarter.

Analysts though said the recovery could be temporary, citing the continuing damage from the coronavirus epidemic and the fact record low interest rates mean borrowing money is cheap.

The Liberal government has provided more than C$200 billion ($152 billion) in direct COVID-19 support and nearly 14% of gross domestic product in total aid.

"Government transfers and reduced spending pushed household savings to an unprecedented level," Statscan said. "This enabled households to shore up their deposit accounts while simultaneously reducing their debt."

RBC Economics senior economist Josh Nye said low rates and higher household savings might help households whose incomes had not been disrupted to press ahead with debt reduction.

"We remain concerned that some households will still struggle to keep up with their debt payments over the next year amid a slow economic recovery and challenging labor market conditions, even with government support being extended," he said in a note to clients.

Government aid pushed household disposable income up by 10.8% while spending dropped by 13.7%.

Household sector net worth - the value of all assets less liabilities - increased by a record 5.0% after a record decline in the first quarter.

Priscilla Thiagamoorthy, an economist at BMO Capital Market Economics, said the combination of low rates and hot regional housing markets could spur higher borrowing.

"That suggests the pullback in the debt ratio could prove to be temporary," she said in a note.

© Reuters. FILE PHOTO: Phase 2 of the reopening from the coronavirus disease (COVID-19) restrictions in Toronto

($1=1.3179 Canadian dollars)

Latest comments

Likely banks are tightening up lending
Covid-19 has its benefits ;)
people stopped going out to eat bars and stayed home cause of covid
That pretty much covers it!
Dows rhis mean people make more money now? Or emergency fund pump?
Very likely means that people focused heavily on paying down their debts rather than spending or investing
Risk Disclosure: Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.
© 2007-2024 - Fusion Media Limited. All Rights Reserved.