Canada: Rising Debt and Borrowing Costs in Q2 a Sign of Things to Come

Canada’s national net worth increased by a very modest 0.2% q/q in the second quarter of 2022 – the slowest advance since Q2 2020 – to reach a high of $17.6 trillion. The weakness in Q2 is the result of sharp declines in the value of both real estate and Canada’s international investment position offset by continued hefty gains in natural resource wealth. Meanwhile, household borrowing continued to advance at a torrid pace in Q2, as Canadians added a near-record of $56.3 billion in debt. Consequently, household credit market debt as a proportion of household disposable income increased to 182% in Q2 from 180% in Q1. While we don’t think the Bank of Canada is blind to these considerations, it made clear last week that its focus in on ensuring inflation expectations remain anchored at 2%. So don’t expect relief coming anytime soon on the rates front.