Exploring the Impacts of Household Debt on Canada's Economy (2024)

FAQs

Exploring the Impacts of Household Debt on Canada's Economy? ›

Structurally higher interest rates with Canada's household debt burden would further lower economic growth. There are also significant distributional concerns from the fallout from high debt. Households with less income tend to be more highly indebted.

The agency wrote that its 2021 census survey revealed debt-to-income ratio reached more than 180 per cent, beating the United States and Germany by a large margin. Both of those countries posted rates of 100 per cent. That means that, for every dollar Canadian households had in disposable income, they owed about $1.85.

The rise in consumer debt levels when the economy slows and/or interest rates rise can lead to a hard pullback in consumer spending. As people pay more of their income to debt, they have less money to purchase other items.

Statistics Canada says households owed $1.79 in credit market debt on average for every dollar of disposable income in the fourth quarter. The federal agency said Wednesday that seasonally adjusted household credit market debt as a proportion of household disposable income fell for the third quarter in a row.

Report from CMHC blames ballooning debt-to-GDP ratio on unaffordable housing and the rise in interest rates that is hammering already stretched homeowners. Updated July 19, 2023 at 6:50 a.m.

In the last decade-and-a-half, combined federal and provincial debt has grown by over $1.0 trillion, or 85.1%. Over these 16 years, federal net debt has increased by $603.6 billion (in 2023 dollars), or 83.1%.

In fact, Canada has the highest household debt level among G7 countries¹. Yes, our country's debt level makes the threat of recession and inflation much risker in general. However, as an individual, not all debt is bad.

Decreased savings and income

The private sector will stop seeking investments that can generate growth due to the incentive to save. This includes the lower amount of capital available once individuals stop investing in securities offered by businesses due to treasury securities being more attractive.

The channel that usually arises is households having a lot of debt—some of that debt is sensitive to interest rates. Interest rates rise, and that leads to a broad slowdown in consumer spending.

As we have discussed elsewhere, government debt reduces economic activity by crowding out private capital formation and by requiring future tax increases or spending cuts to accommodate future interest payments.

How many Canadians suffer from debt? ›

Results from the 2019 survey indicate that nearly three quarters of Canadians (73.2%) have some type of outstanding debt or used a payday loan at some point over the past 12 months (see also Statistics Canada, 2017). Almost one third (31%) believe they have too much debt.

January 2023

Since 2007/08, combined federal and provincial net debt (inflation-adjusted) has roughly doubled from $1.1 trillion to a projected $2.1 trillion in 2022/23. COVID) and 2022/23, the combined federal- provincial debt-to-GDP ratio is expected to grow from 65.7% to 74.6%.

From another report, Canadian consumer debt has risen to $2.4 trillion, with an average debt load of approximately $21,131—excluding mortgages. And Canadians are using credit cards more, as there was a 9% increase in credit balances in June 2023 compared to the same time last year.

Decades of low interest rates and strong housing demand have led to high levels of household debt for Canadians, and now rising interest rates are increasing the cost of servicing that debt.

According to the IMF's 2018 annual Article IV Mission to Canada, compared to all the G7 countries, including the United States, Canada's "total government net debt-to-GDP ratio", is the lowest. Canada has been the G7 leader in economic growth since 2016. The unemployment rate in Canada is at its lowest level since c.

“Spending on credit has served as a relief mechanism for many to keep up with increasing costs – especially for lower-income Canadians – and we see from the data that the burden of repaying that debt is exacerbating the growing financial strain for many households, particularly amid higher interest rates,” says Grant ...

Federal government net debt, at $910 billion, or 36.3% of GDP, was above the pre-pandemic level, but was down from 42.7% of GDP in the previous year. As of March 2022, Canada's DBRS AAA federal credit rating was maintained.

Canadian economy not in recession, but 2023 was one of its weakest recent years. The Canadian economy expanded at an annualized rate of one per cent in the fourth quarter as high interest rates weighed on growth, but not enough to push the economy into a recession.

Toronto, Ontario, August 31, 2023 — A new Ipsos poll conducted on behalf of the Chartered Professional Accountants of Canada (CPA) reveals that almost half (46%) of Canadians are carrying at least some form of non-mortgage related debt.