David Rosenberg: Canada’s debt binge is not good for the economy’s future or the loonie
Unsustainable household debt levels drag on growth and leave us vulnerable to financial crisis
By David Rosenberg and Julia Wendling
Canadians have continued to pile on debt at an alarming rate throughout the COVID-19 pandemic, exacerbating the financial vulnerabilities associated with an overburdened economy.
Indeed, despite being among the most indebted of their peers pre-pandemic, Canadian households expanded their liabilities at the fastest rate in nearly a decade — primarily driven by a huge uptick in demand for mortgages as low interest rates prompted a surge in house prices — leading to a surge in the household debt-to-GDP ratio to 119.6 per cent by mid-2020, from 101.3 per cent at the end of 2019. The household debt ratio has come down since the crisis peak, but the reality is that the population’s excessive borrowing habits leading up to and during the pandemic will likely act as a drag on future consumption — and, thus, economic growth — over the longer term.
As a result, the share of mortgage loans on household balance sheets now sits at the highest level since 1995, at 68.7 per cent (up from 65.9 per cent pre-pandemic), and mortgage debt per capita has reached a record high, further exposing Canadians to any downside housing shock.