Canadian household debt ratio drops thanks to Trudeau transfers
Canadian household debt improved in the first half of 2020 as government support kept incomes afloat amid the pandemic.
Household debt in the credit market fell to 158.2 percent of disposable income in the second quarter, from 175.4 percent previously, Statistics Canada reported in Ottawa on Friday. This is due to an 11% increase in household disposable income, while outstanding debt in the credit market has remained relatively unchanged, the agency said.
Government income transfers during COVID-19 and mortgage deferrals, along with record interest rates, have brought financial relief to many Canadians during the pandemic, especially those who lost their jobs during the pandemic. nationwide business closures and stay-at-home orders.
Economists, however, don’t expect this to last.
“More difficult times are likely to come,” Ksenia Bushmeneva, economist at the Toronto-Dominion Bank, said in an investor report. “These support measures will gradually start to fade, and the state of the labor market and consumer finances cannot diverge indefinitely.”
A major concern is that with a full economic recovery still a long way off and the government of Prime Minister Justin Trudeau ending support measures, some households will find it difficult to keep up with their payments. Consumer defaults and insolvencies will likely start to increase at the end of this year and into 2021, Bushmeneva said.
But for now, government income support is helping the economy come out of the most severe downturn on record and allowing Canadians to pay down their debts and increase their savings.
In the second quarter, the household debt service ratio, the share of disposable income that goes to pay principal and interest, fell to 12.4% from 14.5%. This is the biggest drop on record.
–With help from Erik Hertzberg.