MNI DATA IMPACT:Canada Corporate Debt Surges as Consumers Save

By Greg Quinn

     OTTAWA (MNI) - Canadian companies took on record debts in the first quarter

as Covid-19 shutdowns took hold while heavily indebted consumers were propped up

by relief payouts and mortgage deferrals.

     Companies excluding the financial sector took out a record CAD49.1 billion

of non-mortgage loans, Statistics Canada said Friday from Ottawa. The

debt-to-equity ratio surged to 212% from 189%, the highest since 2009, as the

global crash reduced the value of shares faster than for corporate debt.

     Corporate debt climbed as industrial capacity use declined to 79.8% in the

quarter from 81.8%, including a 74.4% rate for factories that was the lowest in

a decade. Raising money in stock markets was also difficult early this year as

markets crashed.

     Net government borrowing was also the highest since 2009 at CAD28.7 billion

between January and March, as relief programs were being set up and the health

shutdowns crimped tax revenue.  

     --CONSUMER FINANCES IMPROVED

     Consumer finances, the economy's weak spot before the pandemic, were shored

up by some measures as people were forced to avoid going to stores or view open

houses for sale in March amid the lockdowns. Some people also started seeking

unemployment benefits or relief payouts that in some cases exceeded their

working incomes, while banks and car companies allowed people to defer loan

repayments. 

     Households devoted 14.7% of disposable income to debt costs, down 0.1 pp

from the fourth quarter and remaining close to a record high. 

     The closely-watched ratio of household debt to disposable income rose in

the first quarter, to 176.9% from 175.6%. That's close to a record of 178.5%

from the first quarter of 2017.

     "Payment deferrals related to the COVID-19 pandemic had a slight impact in

the quarter, reducing the obligated principal; this is expected to continue in

subsequent quarters," Statistics Canada's report said.

     Household net worth tumbled CAD443 billion to CAD11.3 trillion as stock

market funds plunged 16% to CAD2.45 trillion, the lowest since 2016. The savings

rate still climbed to 6.1% from 3.6% in the first quarter as consumer spending

fell a record 2.1%.

     Consumer debt climbed to CAD2.33 trillion, including CAD1.53 trillion of

mortgages. Household debts are now 104% of GDP. 

     Consumers face a reckoning over the next few months when relief checks are

phased out and mortgage deferrals claimed by 700,000 borrowers end. Home prices

will fall 9%-18% from the first quarter due to coronavirus the federal housing

agency predicts -- that will also pinch families who want to raise cash by

downsizing or taking out home equity loans. 

--MNI Ottawa Bureau; +1 613-314-9647; email: greg.quinn@marketnews.com

--MNI Washington Bureau; +1 202-371-2121; email: jean.yung@marketnews.com

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