Canada’s total national net worth grew 2.5% in Q4 2015 after contracting in earlier three quarters. It reached $9.7 trillion. For the entire 2015, net worth grew 6.6%. The deprecation of loonie has been the major driver of consumer net worth in Q4. The slide in currency increased the value of international financial assets in terms of Canadian dollar.
Meanwhile, debt throughout all sectors of the economy continued to increase more rapidly than underlying income. Indebtedness, on a Q4/Q4 basis, is increasing at the fastest rate since the 2009 recession. The total debt-to-GDP ratio increased to 320%, nearly 24 percentage points more than the same period in 2014. The rise was spread throughout consumers, governments and corporations. In Q4, net government debt increased to 117% of the GDP, a rise of nearly six percentage points on a year-on-year basis. However, net government debt has remained stable at 44%.
In 2015, the sharp depreciation of Canadian dollar has countered certain economic turmoil that reigned in 2015. Still, the economic scenario and commodity prices’ broad-based decline in 2015 was harmful for the indebtedness positions for economy’s most sectors.
Corporations saw considerable decline in profits in 2015, while challenging credit conditions are expected to have constrained their capability to borrow, leading to larger reductions in business investment and employment. This led to slower nominal GDP growth, resulting in reduced government revenues. Meanwhile, most governments are unsuccessful in reaching their deficit targets and are borrowing more.
For consumers, this indicates a slowdown in income growth. However, the growth remains moderate. Still, the consumers are taking additional debt due to the continuous low interest rate scenario. Through the start of 2016, Canada’s consumer borrowing interest rates dropped again that might only lead to additional acceleration in borrowing.
With strong housing activity in the county, additional borrowing and consumer debt is likely to pick up to a pace that is twice that of income in H1 2016. This will further increase the debt-to-income ratio. Even though the rise in borrowing and spending will assist in economic growth, consumers are becoming more vulnerable to a possible interest rate shock or slowdown in the housing market.
The material has been provided by InstaForex Company – www.instaforex.com