Bank of Canada Governor Rogers Consumers to Pay Down Debt
San Francisco, CA -- (SBWIRE) -- 10/20/2012 -- Bank of Canada Governor Mark Carney said that despite financial uncertainty overseas and high consumer debt at home, Canada is in generally solid financial shape.
“While Canada’s economy is being affected by the global angst, the key areas of uncertainty abroad are all points of justifiable confidence here at home,” Carney, who also serves as chairman of the international Financial Stability Board, said in a speech Monday in Nanaimo, B.C.
“Canada’s public finances are sound. Monetary policy is clear and credible. Canada’s financial system showed itself to be among the most resilient in the world through the crisis,” he told the Vancouver Island Economic Alliance.
Carney’s remarks followed news that Canadian households, the Canadian government and the Bank of Canada were in more debt than originally believed.
That rate, according to Statistics Canada, is rising. Last year, the ratio of household debt to income was 161.7%, up from 150.6%. The debt-to-income ratio rose to 163.4% in the second quarter of this year from 161.8% in the previous quarter.
For perspective, the U.S. household debt-to-income ratio was nearly 170% during the peak of the U.S. housing bubble, according to Capital Economics. “Debt growth dynamics over the last decade look eerily similar to the U.S. experience, just before their dramatic housing bust,” Capital Economics said in a commentary attached to its report.
Carney said household debt poses the greatest threat to the Canadian economy in general. He and Finance Minister Jim Flaherty have cautioned consumers to repay as much debt as possible. Much of that debt was acquired through low mortgage rates, with the Bank of Canada’s key lending rate having been at a remarkable low of 1% for two years.
Carney said that rate will most likely be raised to stave off negative economic impacts. He said that the federal government “has taken actions on four occasions... to address some issues in mortgage finance.”
“Those actions have been both timely and prudent,” he continued. “We... are watching with great interest the sum of those policies and the effect on the evolution of household debt.”
A Bank of Canada survey of 100 companies published Monday indicates that while consumers continue to spend and rack up debt, national corporate leaders are holding back on their business plans owing to anemic global economic growth and questionable demand. Most of these companies expect little economic change in the next year.
“Firms are generally more circumspect about near-term investment decisions and are focusing on minimizing costs,” the bank said.
The survey revealed that 40% of businesses believed the pace of sales growth increased over the past 12 months, while 34% said growth had slowed. Remaining respondents saw no change.
Where investment is concerned, 37% of companies said they plan to increase spending over the next 12 months, versus 29% that said they would spend less on investments. The previous survey showed 43% had planned to make investments.
According to the survey, 44% of companies plan to increase employment levels over the same period (compared to 59% in July) while 18% said they would decrease staff levels.
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