Canadians hold on despite debt

Canadians should continue to survive financially in the face of the coronavirus pandemic, provided, however, that they can take advantage of all of the assistance promised and that economic recovery is not long overdue.

Household debt levels and their ability to meet their financial obligations in the event of an economic shock have been viewed for years as one of the main vulnerabilities of the financial system in Canada.

By the time the economic impact of the COVID-19 pandemic and government containment measures began to be felt, Canadian household debt was $ 1.77 for every dollar of disposable income, Statistics reported on Friday. Canada in its portrait of the situation for the first quarter ending March 31. Below its peak of $ 1.79 reached three years ago, this average generally hides a higher level of debt for households with lower incomes and remains relatively high compared to what it was at the same date 10 years ago. years ($ 1.57) or again in 1990 (87 ¢).

Despite the growing number of workers condemned to technical unemployment, the average compulsory payments demanded by these mortgages, lines of credit, car loans or credit card debts, however, fell slightly by 14.81% to 14.67% of household disposable income. This anomaly is explained by the emergency financial assistance that governments were starting to deploy at the same time, but also by the lowering to the floor of Bank of Canada interest rates and the possibility offered to households in difficulty to ask their financial institution a deferral of payments on certain debts.

At the same time, according to Statistics Canada, the rapid deterioration in the economic outlook, and possibly also containment measures, prompted households to strongly increase their savings rate, from 3.6% to 6.1%. their disposable income, notably thanks to a “record drop” in their spending (-2.1%). This was obviously not enough to compensate for the losses suffered by their stocks and investment funds (-15.5%) with the tumble of the stock markets which have since partially rebounded.

In data | Our interactive content on COVID-19

Delicate situation

Canadians are nevertheless in a precarious financial position, Bank of Canada economists observed in an analytical note last week. On average, one in five households does not have the financial cushion necessary to meet their mortgage obligations, while a third would not last four months. The situation is even worse for workers in sectors particularly affected by the crisis, notably in the trades, transport and sales. At the end of the day, more than a third of working Canadians were unemployed, simply gave up looking for work because of the crisis, or worked less than half their usual hours.

In this context, what are the risks of rapidly increasing the number of Canadians dragged down by the weight of their debts? Many of them will be able to turn to their often underused credit lines, but this can only be a short-term solution, observed experts from the Bank of Canada. Emergency aid programs, which will soon come to an end, and whose governments are studying the conditions for a possible extension, can, at best, pay for essential expenses. The payment deferrals offered by the banks and supposed to last 6 months also give an extra boost.

The worst

Without such a set of measures, the proportion of households obliged to return the keys to their houses would increase rapidly to exceed the historic peak recorded during the recession of the early 1980s, our experts estimate. This worst-case scenario, however, seems to be being avoided although some increase in the rate of arrears on mortgage loans is to be feared at the turn towards the end of the year, they calculated based on the assumption of a full economic recovery within a year.

If all goes well, Canada will see its economy experience a staggering 8% decline this year, followed by a modest 3.9% rebound next year, warned on Wednesday, the Cooperation Organization and Development Agency (OECD) in updating its economic forecasts. But if the bad luck is that we are facing a second wave of the coronavirus pandemic, the fall this year could be 9.4% and its rebound in 2021 of only 1.5%.

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