Canadians have struggled with rising debt for a while with household debt rising steadily. But now for the first time ever the level of debt has exceeded the country’s gross domestic product (GDP).
GDP refers to the total economic output of the country so for our debts to be greater than that has sparked concern across the country. CIBC deputy chief economist Benjamin Tal told the Financial Post that the real problem the economy faces isn’t the rising debt, but rather the stalling income growth.
“Given that interest rates are so low, this is an environment you’d expect consumer credit to rise to the sky — and it’s not. The debt-to-income ratio is not because of the debt accumulating very fast, but rather the income is not rising fast enough to compensate (borrowers)."
The difficulty Canadians face in servicing their household debt will mean interest rates will need to remain low in order to let people pay it down. The ratio of debt to disposable income was 167.6% from the period of April to June this year, marking a slight increase from the beginning of the year where it was 165.2%.