Canadians lost $500 billion in paper wealth in Q3, but there's a silver lining — via financialpost
Comparisons with U.S. household debt circa 2007 are often superficial, stopping at the headline numbers. Canadians tend to be far more credit worthy than their American cousins, and they’ve historically tended to prioritize debt payments when things start to get tight, rather than carrying on spending money they don’t have. Financial regulation is also stronger now than it was then, and Canada’s mortgage stress test will have limited the number of households who took on debt they can’t afford.
Indeed, if a recession comes, Canadian households will be facing it with a buffer. The savings rate rose to 5.7 per cent in the third quarter from 5.1 per cent in the second quarter, as disposable income increased faster than spending. That’s a remarkable number because even relatively thrifty Canadian households weren’t stashing away a lot of money ahead of the pandemic. The average savings rate over the decade prior to 2020 was 3.4 per cent, Statistics Canada said.
At the same time, non-financial private corporations are loading up on debt like never before, probably because their owners and managers sensed interest rates would only be going higher. Those companies took out non-mortgage loans worth $36.5 billion in the third quarter and $32.5 billion in the second quarter, the second- and third-highest totals on record.
To be sure, more corporate debt could be another vulnerability. Some economists worry that low interest rates have created “zombie firms” that survive on credit lines rather than profits. But with equity markets in turmoil, a jump in non-mortgage loans could signal that companies were keen to raise capital by whatever means was available.
After years of demonstrating a lacklustre commitment to investment, maybe Canada’s companies are finally ready to take the baton from the country’s overextended households.
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