Briefing highlights
- ‘Tapped out’ and ‘accident-prone’
- Global markets on the rebound
- Toronto rents to rise, study says
‘Tapped out’
The Canadian consumer of 2016 is “tapped out” and “more accident-prone” should the world suffer another financial crisis, a major bank says.
Indeed, HSBC Bank Canada warns the country is more vulnerable now than in the run-up to the last, and not-so-distant, crisis.
Much of this has to do with the swollen debts of Canadian households, record levels that have been a source of concern for the Bank of Canada, the Bank for International Settlements, the International Monetary Fund and others.
Given those debts, said HSBC Bank Canada chief economist David Watt, consumers now will be more cautious, which will affect an already fragile economy.
“While consumers have been an important source of support for the economy, we look for a more moderate consumption profile given the record level of household sector indebtedness and sluggish income growth,” Mr. Watt said in a recent report.
“Indeed, although it is not our base case, we believe debt levels pose a heightened downside risk to financial stability,” he added.
“Along with a large current account deficit, we see Canada as more vulnerable to disruptions to global capital flows than when it was heading into the 2007-08 financial crisis.”
He cited the fact that among the Group of Seven leading industrialized nations, Canada has the highest ratio of household debt to gross domestic product.
“Canada’s private sector, in our view, is essentially tapped out,” Mr. Watt said.
“Given the recent widening of global imbalances, with its echoes of the 2007-08 financial crisis, the high level of indebtedness makes Canada, in our view, more accident-prone in the event of another global crisis,” he added.
Mr. Watt, who projects economic growth in Canada of 1.8 per cent next year and 1.7 per cent in 2018, added later that this should all serve as a call for prudence among consumers.
Markets up
Global markets are on the rebound so far, with New York poised for a stronger open.
Tokyo’s Nikkei gained 0.5 per cent, Hong Kong’s Hang Seng 0.9 per cent, and the Shanghai composite 0.1 per cent.
In Europe, London’s FTSE 100, Germany’s DAX and the Paris CAC 40 were up by between 0.8 and 1.9 per cent by about 8 a.m. ET.
New York futures were also up.
“European markets are once more taking their lead from overnight data out of China, with the world’s second-largest economy finally breaking out of its deflationary spiral,” said IG market analyst Joshua Mahony.
“If yesterday’s deterioration in Chinese exports pointed towards the potential for further easing from the [People’s Bank of China], today’s surprise spike in both consumer and producer prices does the opposite, proving that the inflation picture is on the right track.”
Earnings from major U.S. banks are also playing into the morning action.
Where markets ended Thursday
Rents to rise
Toronto’s rental market is the hottest it has been in years, with bidding wars breaking out and rents soaring, according to a new study that predicts Ottawa’s new stricter mortgage qualification will make the region’s rental market even less affordable.
As The Globe and Mail’s Tamsin McMahon reports, the average monthly rent for a condominium in the Greater Toronto Area rose an annualized 9 per cent in the third quarter, to $1,986, Toronto market research firm Urbanation Inc. wrote in a new report.