StatCan: Household debt service ratio sees record decline
The household debt service ratio in Canada shrank in the first half of 2020, according to recent figures from Statistics Canada (StatCan).
The household debt service ratio, which is defined by StatCan as the total obligated payments of principal and interest on credit market debt as a proportion of household disposable income, dropped from 14.54% to 12.40% – the largest decline on record.
Read more: Rise in Canadian household debt significantly outstripping GDP growth
Additionally, household debt as a proportion of household disposable income “fell from 175.4% to 158.2%, as household disposable income increased 10.8% and the stock of credit market debt remained relatively unchanged,” said StatCan. “In other words, there was $1.58 in credit market debt for every dollar of household disposable income.”
Experts point to government support by way of income transfers combined with mortgage deferrals and low interest rates for the shrinking debt ratio. However, some economists have warned that, with the economy still in the midst recovery, the country may still see a rise in delinquencies and insolvencies into 2021.
“More challenging times are likely ahead,” Ksenia Bushmeneva, an economist at Toronto-Dominion Bank, told investors as reported by Bloomberg. “These support measures will gradually begin to wane, and the state of the labour market and consumer finances cannot diverge indefinitely.”
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