Soaring Canadian Household Debt Puts Economy At Risk

John Manneh February 10, 2015

canadian-household-debt-1024x575Canadian household debt ratios have now surpassed the levels seen in the United States and United Kingdom during the height of the credit bubble. The McKinsey Global Institute’s new report, “Debt and (not much) deleveraging” raises concerns over debt levels across the globe, but pinpoints Canada as one of seven “at risk” countries with economies vulnerable to household debt levels.

It joins the Netherlands, South Korea, Sweden, Australia, Malaysia and Thailand as the countries with the highest debt-to-income ratios as well as the economies that have seen their debt loads accelerate since 2007. Canada’s debt-to-income ratio currently sits at 155 per cent as of the second quarter of 2014, according to the research organization. That ratio has increased 22 percentage points since 2007, one of the biggest surges among the 22 advanced economies studied.

The report noted, “High debt levels, whether in the public or private sector, have historically placed a drag on growth and raised the risk of financial crises that spark deep economic recessions.”

Mortgages account for 74 per cent of household debt in advanced economies, according the report, and the institute points the finger at the runaway real estate market “driven higher by readily available mortgages.”

Canadian debt levels have continued to break records with the average household debt burden hitting a new high in the third quarter of 2014. Likewise, the amount of consumer debt owed by Canadians rose to a new benchmark of $1.513 trillion that same quarter. To learn more about how mortgage levels have changed in each province over the years, see our interactive map.

Leading economists have been vocal in their concerns about Canadian debt levels. When news broke of the Bank of Canada’s surprise decision to lower its key interest rate further to 0.75 per cent, the Bank of Montreal’s Doug Porter suggested the move would threaten to “tilt an already lopsided economy into one that is grotesquely skewed toward housing and consumer spending.”

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