Canadians are spending more of their monthly budget on servicing debt, according to Bloomberg, hitting highs not seen since late 2008.
The household debt service ratio — a measure of the share of income that goes toward paying interest and principal on mortgage, credit card and other types of debt — reached 14.2 percent in the second quarter, the highest level since the end of 2008. –Bloomberg
The spiking debt-service ratio follows four central bank interest rate hikes over the past 14 months, while borrowing costs are expected to rise again in October.
According to data released Friday by Statistics Canada, a larger percentage of Canadian income goes towards interest payments alone, at around 6.9% – the highest level in five years.
Elevated debt levels remain a vulnerability for the economy. Canadian households are the most leveraged in the Group of Seven, with total debt of about C$2.19 trillion ($1.68 trillion), or C$1.69 in debt for every C$1 of income. That jeopardizes the sector’s future contribution to real gross domestic product growth. –Bloomberg
Around 1.9% of Canadian growth were attributed to consumption spending last year, which is expected to fall to 1.2% by 2020 according to projections by the Bank of Canada.