Fitch on Canada: Not the Next Japan, But Worries Increasing

(The following statement was released by the rating agency)NEW YORK, September 21 (Fitch) Canada is not headed for an extended period of stagflation akin to what Japan has endured for the last two decades, though analysts at a Canadian credit forum hosted by Fitch Ratings in Toronto last week pointed to a few worrisome tea leaves that warrant close attention in the coming months.Once such tea leaf includes Canadian household debt. While both US and European markets delevered substantially following the market crisis, the same cannot be said for Canada according to Fitch's Global Head of Sovereigns James McCormack. 'Household debt levels in Canada are now roughly 100% of GDP and still rising,' said McCormack. The same can be said for corporate leverage in Canada, which is also rising in contrast to the US, Europe and Japan. That said, the Canadian banking sector remains among the strongest in the world. So while there are some 'red flags' to monitor, 'we're not in a position to be suggesting that there's imminent danger around the corner,' said McCormack.Another area of concern is Canada's housing market. When asked by BNN's Catherine Murray on whether Canada is primed for a hard or soft landing for housing, BMO Financial Group Chief Economist Douglas Porter said it depends on the market in question. For instance, Porter pointed to a 'real risk of a hard landing in Vancouver' while the fate of Toronto's housing market is more uncertain. And without government intervention to cool it down, Porter said Toronto's home price growth could reach a pace that will eventually lead to a hard landing. Conversely, most of the rest of Canada is what Porter called 'well-behaved' in terms of housing discipline, with signs of strength emerging in markets like Ottawa and Montreal.Increasing interest rates remain a worry for Fitch. While rising household, corporate and government debt in Canada exacerbates the concern, McCormack was quick to point out that scenario is not Fitch's base case outlook. Porter's overarching worry, in contrast, is if Canada is locked into a slow motion, milder version of what Japan has been in for the last 20 years. McCormack deemed that scenario as unlikely for Canada in part due to the bursting of an enormous real estate bubble that led to Japan's extended period of stagflation.Additional details will be made available in a series of videos from the forum that Fitch will release in the coming days on Fitch's Canada page ('www.fitchratings.com/site/canada') as well as 'www.fitchratings.com'.Contact:James McCormackManaging Director, Global Head of Sovereigns+44 203 530 1286Fitch Ratings Limited, 30 North Colonnade, London E14 5GN Andrew SmitiuchManaging Director, Head of Fitch Canada+1-416-703-4824Media Relations: Sandro Scenga, New York, Tel: +1 212-908-0278, Email: sandro.scenga@fitchratings.com.Additional information is available on 'www.fitchratings.com'.ALL FITCH CREDIT RATINGS ARE SUBJECT TO CERTAIN LIMITATIONS AND DISCLAIMERS. PLEASE READ THESE LIMITATIONS AND DISCLAIMERS BY FOLLOWING THIS LINK: HTTP://FITCHRATINGS.COM/UNDERSTANDINGCREDITRATINGS. IN ADDITION, RATING DEFINITIONS AND THE TERMS OF USE OF SUCH RATINGS ARE AVAILABLE ON THE AGENCY'S PUBLIC WEBSITE 'WWW.FITCHRATINGS.COM'. PUBLISHED RATINGS, CRITERIA AND METHODOLOGIES ARE AVAILABLE FROM THIS SITE AT ALL TIMES. FITCH'S CODE OF CONDUCT, CONFIDENTIALITY, CONFLICTS OF INTEREST, AFFILIATE FIREWALL, COMPLIANCE AND OTHER RELEVANT POLICIES AND PROCEDURES ARE ALSO AVAILABLE FROM THE 'CODE OF CONDUCT' SECTION OF THIS SITE. FITCH MAY HAVE PROVIDED ANOTHER PERMISSIBLE SERVICE TO THE RATED ENTITY OR ITS RELATED THIRD PARTIES. DETAILS OF THIS SERVICE FOR RATINGS FOR WHICH THE LEAD ANALYST IS BASED IN AN EU-REGISTERED ENTITY CAN BE FOUND ON THE ENTITY SUMMARY PAGE FOR THIS ISSUER ON THE FITCH WEBSITE.