Canadian households “freaking-out” over debt. What about Australia’s 120.5% of GDP?
MacroBusiness 12:10 am on March 28, 2019
Leith van Onselen
According to Bloomberg, Canadians are “freaking out” over the level of household debt, which is now the highest of the G7 nations at 100% of GDP:
Household debt in Canada, a nation generally known for moderation, has reached levels that could be qualified as excessive. Canadians owe C$2.16 trillion—which, as a share of gross domestic product, is the highest debt load in the Group of Seven economies. With the housing market cooling, a reckoning may be fast approaching. People are “freaking out,” even though, with interest rates not far above historical lows, “money still costs nothing,” says Scott Terrio, a Toronto-based manager at Hoyes, Michalos & Associates Inc., a company that specializes in insolvency.
Until recently, Canada had been lauded as a bastion of sound financial management. The country of 37 million emerged relatively unscathed from the global financial crisis, thanks in large part to the strength of its banks. But the extended run of low interest rates that followed sparked a boom in borrowing, with the ratio of debt to disposable income rising to a record 174 percent in the fourth quarter, from 148 percent a decade earlier.
Now everything is downshifting. The Bank of Canada has hiked the benchmark interest rate five times since mid-2017, to 1.75 percent. Federal and provincial governments have enacted a raft of rules in recent years to tame housing speculation. The policy changes are having an effect. Home values fell in 2018 for the first time in three decades, and the slide has extended into this year.
The above sounds all too familiar. Except that Australia’s household debt dwarfs Canada’s at 120.5% of GDP, according to the Bank for International Settlements, and is the second highest in the world: