Newspaper article The Canadian Press

Canadians Rack Up Debt in Fourth Quarter, but Debt to Income Ratio Improves: Canadians Continue to Rack Up Debt in Q4

Newspaper article The Canadian Press

Canadians Rack Up Debt in Fourth Quarter, but Debt to Income Ratio Improves: Canadians Continue to Rack Up Debt in Q4

Article excerpt

TORONTO - Canadians racked up more debt in the final quarter of 2011, but the key debt-to-income ratio that officials have been warning about fell from record highs thanks to rising income levels.

Statistics Canada reported Thursday that household credit market debt, which includes credit cards, mortgages and loans, rose in the fourth quarter, even as borrowing slowed.

The Bank of Canada and the federal government, among others, have warned repeatedly that Canadians are taking on too much debt, lured by the super-low interest rates.

Credit market debt-to-personal disposable income also backed off to 150.6 per cent from 151.9 per cent during the quarter. That means Canadians now owe $150.60 for every $100 in disposable income.

"At 150.6 per cent, household indebtedness remains excessive," said TD economist Diana Petramala.

"And, the ratio is likely to climb further in the quarters ahead as the combination of soft labour markets and expected modest economic growth suggest the sharp gain in personal disposable income at the end of 2011 was unsustainable."

The problem for central bank governor Mark Carney -- one of the most active voices on the potential debt crisis -- is that the Canadian and global economies are in too fragile a state for policy-makers to clamp down on rates, leading many to suspect they will remain low well into next year.

Carney has admitted that keeping rates low will foster a continued rise in household debt from historic highs in the third quarter. That's because low interest rates encourage consumer spending and help to spur borrowing and buying activity in the Canadian housing market.

"More household debt accumulation now, will only come at the expense of less household spending and overall economic activity later down the road as interest rates return to more normal levels," Petramala said.

The decline in the debt-to-income ratio is a positive trend, but it doesn't necessarily mean Canadians are heeding warnings about taking on too much debt. …

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