Higher interest rates are deterring Canadians from borrowing, Statistics Canada said Wednesday, while higher incomes help offset rising debt service costs.
Statistics Canada says there was $1.81 of credit market debt for every dollar of household disposable income in the second quarter, compared to $1.84 in the first three months of 2023.
Household credit market debt as a proportion of household disposable income, on a seasonally adjusted basis, fell to 180.5 percent in the second quarter, from 184.2 percent in the first quarter of the year.
Meanwhile, the household debt service ratio, measured as the total mandatory payments of principal and interest on credit market debt as a proportion of household disposable income, was 14.79 percent in the most recent quarter. recently, down from 14.90 percent in the first quarter, when it reached its highest level since 2019.
StatCan said household disposable income rose 2.6 per cent in the second quarter, helping to blunt the impact of rising debt linked to the Bank of Canada’s rapid interest rate hikes since March. 2022.
Seasonally adjusted borrowing in the household credit market fell to $17.1 billion in the second quarter from $20.4 billion in the first quarter as demand for mortgages fell to its lowest level since 2005.
Maria Solovieva, an economist at TD Bank, said in a note to clients on Wednesday that these falling figures, combined with the growth in household wealth and the rebound in real estate valuations, “bring good news on the situation of Canadian households during the first half of the year.
However, she warned that overall improvements in debt-to-disposable income ratios “mask the pain felt by some Canadian households.”
The income gains came as Canadians still faced high inflation levels in the second quarter of the year, she noted, adding that the latest figures from Equifax Canada show rising inflation rates. delinquency on many credit products.
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StatCan also noted that income gains are not equal across income brackets, making some Canadians more vulnerable to higher debt than others.
“The Bank of Canada will need to closely monitor household credit performance as rising interest rates continue to weigh on Canadian households this year,” Solovieva wrote.
Shelly Kaushik, an economist at BMO, also noted Wednesday that while the tightening labor market in the first half of the year contributed to higher wages for Canadians, a colder labor market will likely slow income growth in coming quarters. .
At the same time, rising interest rates will continue to increase pressure on the debt servicing side, Kaushik said in his note. Canadians whose mortgages are up for renewal will largely be forced to moderate their consumer spending this year, she said, leading to an expected slowdown in overall economic activity for the rest of the year. .
— with files from The Canadian Press
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