Canada: Household Debt is a headwind for consumption – TD Securities

Robert Both, macro strategist at TD Securities, points out that the Canadian household balance sheets for 2019Q2 showed slight progress in the deleveraging process.

Key Quotes

“Canadian households still owe $1.77 for every dollar of income and spend 14.9% of disposable income on debt payments, which represents a significant headwind to future consumption growth.”

“The deleveraging process will take time and leave debt-service ratios elevated over the projection horizon. We estimate that every 1% rise in the debt-service-ratio coincides with a 0.1-0.2pp drag on consumption over the following year.”

“Complicating matters is an already low savings rate. Further declines can provide a slight boost to consumption, but should households prioritize saving to guard against future rate hikes it would result in a more sluggish pace of spending.”