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. File photo by THE CANADIAN PRESS

Rising household debt could be drag on long-term growth: federal document

OTTAWA — 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.

BMO chief economist Doug Porter says he doesn’t dispute the broader conclusion that a rising household debt-to-GDP level poses risks for growth.

But he’s skeptical one can draw a direct line from the household debt-to-GDP directly to economic growth down the road. For one, he said interest rate levels must be factored in.

“I’d be very cautious about putting pinpoint accuracy on that,” Porter said. “I think that’s incredibly difficult to do.”

However, Porter says the record levels of household debt piling up in Canada, like in many industrial-world economies, does suggest it will be tougher for the country to grow as quickly as it has in the past.

“The consumer spending and housing gains that we could reap from lower interest rates have basically been reaped,” he said.

“And, if anything, interest rates are probably more likely to rise than fall from current levels. So, to me that suggests we just really can’t count on the consumer to really pull the economy ahead as they have in recent years.”

Just Posted

Quebec man arrested in slaying of Alberta woman 16 years ago

AIRDRIE, Alta. — A Quebec man has been arrested in the slaying… Continue reading

Construction underway at Medicine River Wildlife Centre in Red Deer

The new building is twice the size of the old one

Fish for free

No license is required to ice fish on Family Day weekend

Music industry struggles to shake ugly legacy of sex, drugs and rock ‘n’ roll

TORONTO — Allegations of sexual misconduct swirling around pop-rockers Hedley have put… Continue reading

WATCH: Red Deer rings in the Chinese New Year

A couple hundred fill Festival Holiday to ring in the Year of the Dog

WATCH Replay Red Deer Feb. 18: Your weekly news highlights

Watch news from Red Deer and Central Alberta

How to keep local news visible in your Facebook feed

Facebook has changed the news feed to emphasize personal connections. You might see less news.

#Metoo movement causing confusion in many men, fear of missteps with women: experts

Being painted by the same sweeping brush as those alleged to have mistreated women has angered men

Virtue and Moir break their own world record

Virtue and Moir break short dance record to sit first in ice dance at Olympics

Calgary man dies in Mexico following sudden illness

Troy Black was with his wife, Lindsay, in Puerto Vallarta when he began vomiting blood on Thursday

Life or death main decision for school shooting suspect

FORT LAUDERDALE, Fla. — The evidence against the Florida school shooting suspect… Continue reading

Man who stole millions from Seabird Island band sentenced to 4.5 years jail

Stephen MacKinnon sentenced in Chilliwack court for stealing $2.3 million over eight years

Vancouver artist’s cartoon of Florida school shooting resonates

Cartoon shows football coach, one of the victims, meeting others killed in school shootings

B.C. man brings dog to court as ‘best witness’

Man is defending himself on charges of uttering threats, possessing weapon for dangerous purposes

Most Read


Five-day delivery plus unlimited digital access for $185 for 260 issues (must live in delivery area to qualify) Unlimited Digital Access 99 cents for the first four weeks and then only $15 per month Five-day delivery plus unlimited digital access for $15 a month