In contrast to a small bit of deleveraging in the US following the great recession, credit expansion in Canada went into overdrive.
Will Canada’s debt frenzy stall, or will it implode?
Bloomberg reports Canada’s Credit Cycle Has Never Been This Desynchronized From the United States.
Canada has entered the very late innings of its super-charged private sector credit cycle, one that has completely decoupled from that of its largest trading partner, according to Macquarie Analyst David Doyle.
“Canada’s private sector nonfinancial debt to GDP ratio (includes household debt and non-financial business debt) has skyrocketed since 2005, rising by over 60 percentage points,” he wrote. “This is a greater magnitude of increase than occurred for the forty years prior (1965 to 2005).”
As a result of this prolonged binge, Canada’s private sector non-financial debt-to-GDP exceeds the comparable U.S. ratio by its highest level on record:
Doyle indicated that it was the smaller retreat in Canadian home prices and the continuation of the commodity supercycle the enabled the credit cycle in the Great White North to decouple so markedly from that of the world’s largest economy.
A best-case scenario for Canada would see the nation muddle through with a few years of sluggish growth, judged Doyle. Fiscal stimulus, a modest pick-up in non-energy goods exports, and growth in the export-oriented segments of the services sector could provide significant offset to the deterioration in credit-sensitive sectors that the analyst sees in the offing.
“We do see a path out, I don’t know if I’d call it a beautiful one, but Canada doesn’t have to look like the U.S. in 2008-2009,” said Doyle.
Forget about the best case scenario. Canada will be lucky to escape outright implosion.
Mike “Mish” Shedlock
Two things strongly affect Canada –
One, the currency is not the reserve currency and has dropped so much against the dollar that exporters will do well and prop up the economy relative to the US – this hides many sins.
Two, the continued capital flight from China will keep real estate prices high – which is where most of this debt surge has been. My kid can’t buy a house for under $300,000 and that’s for a shit box. (and before someone says that’s only Toronto and Vancouver, he’s in Northern Ontario!)
Meanwhile the oil price drop which is hurting the West will unlikely result in as many bankruptcies as in the shale oil business in the US since up here all of the players are the big guys and will be bailed out before they can fail.
No – Canada’s problems will be kicked down the road with massive government intervention, massive government deficits and a much worse problem 10 years from now when everyone wakes up and realizes the remaining oil must stay in the sand. The end result will be our kids all freeze to death in the dark up here.
@Peter
You may be right but…….
If commodities crumble so do your exports (and the plunge in the currency will make everything more expensive than it is). Not many economies do well in the long term through devaluation. Second, relying on capital flight from China is high risk and assumes that it will continue into the future. More likely to drive up prices and leave you with empty, rotting, devaluating properties and hollowed out communities.
The ‘more debt’ solution to the debt problem must have an end somewhere (I would have thought!)
The only thing Canada has going for it is housing market.
Mining, forestry and oil are on there back. We don’t do anything else.
Auto sales will soon tank.
The financial industry is crumbling.
Our banking system has been propping up zombie companies, praying that all of the ZIRP would help.
Canadian banks issue non cumulative convertible preferred shares as fast as they can to bolster their Tier 1 capital.
They are similar to CoCo bonds in Europe.
The difference is that pref dividends are not an expense like bond interest so the don’t affect the earnings.
I think the banking system will implode along with the Real estate market.
To see the scant # of bankruptcies see Superintendent of Bankruptcy Canada and you will get all the bankrupt companies for the last 5 years starting yesterday.
Can you provide an exact link of where to find the number of Canadian Bankruptcies? Went to the site mentioned in your comment, but it just offers services, not stats………
Wheat farmers bought bigger tractors and combines with heating, air conditioning, stereo, video, computer, and satellite connections. The future of farming is many small, inexpensive, independent, robot farm implements.
It sure takes a lot of piling on of debt by governments (all levels), businesses and households in Canada to keep our way of life in this country going.
The following numbers are taken from the Statistics Canada website:
At the end of September, 2015 the total debt outstanding in Canada (bottom line of the credit market summary data table) was $6.70 trillion.
At the end of September, 2014 the total debt outstanding was $6.17 trillion. In the one year period from the end of September, 2014 to the end of September, 2015 it increased by $530 billion. This is an increase of 8.5%.
The approximate beginning of the global financial crisis was June, 2007. At the end of June, 2007 the total debt outstanding was $3.99 trillion. In the last 8-1/4 years it has increased by $2.71 trillion. This is an increase of 67.9%.
Looking at the total debt outstanding in Canada of domestic non-financial sectors (17th line up from the bottom of the credit market summary data table):
At the end of September, 2015 the total debt outstanding of domestic non-financial sectors was $4.86 trillion.
At the end of September, 2014 the total debt outstanding of domestic non-financial sectors was $4.54 trillion. In the one year period from the end of September, 2014 to the end of September, 2015 it increased by $323 billion. This is an increase of 7.1%.
At the end of June, 2007 the total debt outstanding of domestic non-financial sectors was $2.84 trillion. In the last 8-1/4 years it has increased by $2.02 trillion. This is an increase of 70.9%.
The start date of this Statistics Canada data table can be changed by clicking on the “add/remove data” tab at the top of the page.
http://www5.statcan.gc.ca/cansim/pick-choisir?lang=eng&p2=33&id=3780122
Everyone is missing the point about the Canadian economy. Canada is a COMMODITY ECONOMY, especially a MINING ECONOMY.
It takes MILLIONS OF DOLLARS and 4 to 5 years to bring a MINING PROJECT to market.
Canadian companies have invested the BILLIONS of DOLLARS and the 4 to 5 years, to bring many projects to market, BUT the anticipated markets NO longer exist.
“…the anticipated markets no longer exist”…
Expect what the US has had since our manufacturing left the country in the 1990s: A forgotten group of unemployed, underemployed and now uncounted, shadow citizens.
When you can no longer export to other countries you are just playing a giant game of Monopoly — passing a few dollars back and forth.
I blame whitey.
I agree with Moody’s price of oil . Between now and 2018 value/bbl drifts up into the 40’s
This price controls the Shale Recovery and Stalls any new project in Tar Sands Oil. Oil is so abundant that UAE offered India 6 million bbls toward India’s strategic stash. They offered 4 million bbls free. (or 10 bucks a bbl for 6 mil). One of the reasons Oil remains in the doghouse is the slow pace of growth around the world. How ever the underlying reason for this glut is a weaker China, European and 3rd world country debt from 2008, dragging behind the economic engine like wedding cans on string.
Every 3 or 4 months, the IMF seems to spew something about a downgrade in world growth.
Its pretty hard to expand, when the books show, your jammed to the jewels in debt.
That goes for Country, Corp, and Household.
There is no quick fix, look at Japan. They cannot buy their way out of the doldrums and now want to punish the Old Folks. When you are old …. you hoard money. Japan has an aging population. Negative interest rates says you are running out of economic bullets. Pistol whip the banks and their clients. Neg Rates says you failed
And US threatened for months to raise interest rates. A here it comes, look out,…. a 1/4 .
That is how fragile the world economy is. Another 3/4 % and a super sell off, on the Dow, and both eyes of a deflation animal, glaring, in the headlights.
Poloz has given us a mental massage too, about this Neg Rate. But Canada is set up for a classic correction in housing. Already happening on the Prairies. Toronto will take longer. Last week,CBC News shows an old half duplex in T-O east end – list for 600k and sell for 680k in a week. Time to cash out and sit on the sidelines.
Canada has been drunken sailors for 10 years. There will be a hangover
But when I compare Germany and Greece…..I wish we had been a German protege
The consumer can’t bail us out much longer.