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A key measure of Canada’s consumer debt hit a new record level in the third quarter of 2013, according to data released on Friday by Statistics Canada.
The debt-to-disposable income ratio rose to 163.7 per cent in the third quarter, up from 163.1 per cent in the second quarter. (Tweet this) On a year-over-year basis, it increased by 4.5 per cent, the slowest growth rate since the US recession in 2001.
Canada’s climbing consumer debt level has been a source of concern to economists and policymakers for several years. In this week’s Financial System Review, the Bank of Canada said the high level of household indebtedness and housing market imbalances made Canadians vulnerable to an adverse macroeconomic shock and a sharp correction in the housing market.
But even as the debt-to-disposable income ratio hit an all time high, economists viewed the Statistics Canada data as a sign that credit growth is moderating.
Commenting on the Statistics Canada third quarter data, TD Economist Leslie Preston said the rise in the debt-to-income ratio will grab attention, but the trend is unlikely to continue.
“It’s not surprising to see household indebtedness pick up as the housing market experienced renewed momentum this year,” she said.
“In large part, the increase in household indebtedness also reflects softer income growth on a trend basis, as the pace of growth in household debt continues to decelerate. As the housing market stabilizes over the coming quarters and income growth picks up, the debt-to-income ratio is expected to remain close to its current, still elevated, level.”
Preston also said the fall in the debt service ratio suggests that Canadians are able to handle their debt levels.
BMO Senior Economist Benjamin Reitzes said that the slowdown in the debt growth should be encouraging for policymakers.
“The 0.6 ppt rise was the smallest Q3 increase in 12 years. And, that comes after Q2 saw the smallest increase in 10 years,” wrote Reitzes in a note published on Friday.
“[The figures] suggest that the Bank of Canada’s belief that imbalances are evolving constructively is right on the mark.”