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Consumer debt levels continue to swell

OTTAWA - New numbers from Statistic Canada show consumer debt levels hit an all-time high in the third quarter.

The debt-to-disposable-income ratio came in at 164.6 per cent for the three months ended Sept. 30, up from 163.3 per cent in the second quarter.

While the ratio continues to grow, it was a smaller increase than seen in the previous quarter.

Records levels of consumer debt have prompted numerous warnings from Finance Minister Jim Flaherty and Bank of Canada governor Mark Carney that money will not remain cheap forever.

Driven by ultra-low borrowing costs, Canadians have racked up record levels of debt since the recession.

Canada's debt-to-income ratio is higher than what the U.S. faced just prior to its mortgage crisis that sparked the so-called "Great Recession." Still, experts have said they don't anticipate a U.S.-style housing market crash in Canada.

Last week, Carney held the bank's key overnight rate at one per cent, where it's been for two years.

But Carney continues to send the message that the cost of borrowing will go up at some point in the future.

Meanwhile, a study by Moody's released in September warned that with Canadians so deep in debt, it would be extremely difficult for domestic spending to pick up the slack in the economy if things started to go downhill.

That could result in a serious downward spiral in employment levels, household spending and the quantity and quality of credit outstanding, the report warned.

In November, Statistics Canada reported the country's gross domestic product output had slowed to 0.6 per cent — about half what the central bank had predicted in October and the weakest result in more than a year.

Carney noted earlier this week that the next big economic challenge is the so-called "fiscal cliff" due to kick in on Jan. 1 unless the U.S. Congress can come to an agreement to extend a series of tax cuts and spending measures that represents about four percentage points of U.S. gross domestic product.

Carney says such an outcome could push the U.S. back into recession and drive Canada into economic contraction as well.

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