Canada’s national wealth rises slightly in Q2, household indebtedness rising higher

Canada’s national wealth rose a bit in the second quarter of this year. It was up 0.1 percent, as lower real estate prices and sales activity resulted in the smallest rise in non-financial assets since early-2009. Increased spending on durable goods such as autos mainly drove consumer credit debt up 2.4 percent, outpacing the 1.6 percent rise in mortgage debt. With household debt rising at a faster rate than income, the debt-to income ratio rose to 167.8 percent. The debt-to-asset ratio also rose, reaching 16.7 percent.

The household debt service ratio remained stable at 14.2 percent, while the proportion of interest costs as a share of after-tax income dropped to a record low of 6 percent. Governments at all levels increased borrowing, during the quarter, with the federal government recording the largest net increase since 2010. In the meantime, non-financial corporations issued less equity in the quarter, driving the debt-to-equity ratio up to 70 percent.

Today’s report is in line with the notion that consumer spending has been a major driver of growth so far in 2017, popped up by wealth impacts stemming from past gains in home prices. But the housing market policy changes in Ontario have already started to have an effect on net wealth.

Going forward, the spending environment would become more challenging given the recent interest rate hikes by the Bank of Canada. With additional hikes likely in the pipeline, there would be some additional deterioration in the debt service ratio in the quarters ahead.

Household indebtedness rose higher in the second quarter from an already elevated level. As such, it continues to be a key risk to the economic outlook. This is especially true in regions that are more sensitive to higher interest rates such as B.C. and Ontario, with the latter even more at risk given the recent turn in the housing market, stated TD Economics in a research report.

At 19:00 GMT the FxWirePro's Hourly Strength Index of Canadian Dollar was neutral at -17.5635, while the FxWirePro's Hourly Strength Index of US Dollar was neutral at -25.4857. For more details on FxWirePro's Currency Strength Index, visit http://www.fxwirepro.com/currencyindex

FxWirePro launches Absolute Return Managed Program. For more details, visit http://www.fxwirepro.com/invest