Financial flows

Fourth quarter 2005

Note to readers

Highlights

Overall funds raised by domestic non-financial sectors on financial markets amounted to $125.5 billion in the fourth quarter of 2005 (seasonally adjusted at annual rates), up marginally from the $125.1 billion raised in the third quarter. The rise resulted from an increase in borrowing activities by the public sector, whereas private sector demand for funds declined.

Overall demand for funds flattens

Financial markets closed the fourth quarter of 2005 marked by continued strength in the value of the Canadian dollar, ending the year at 86 cents U.S.; increases in both short-term interest rates and in mortgage rates; and firmer stock markets.

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Household borrowing weakens

Consumer credit borrowing weakened in the quarter, reflecting a decline in consumer expenditure on durable goods. However, mortgage demand was up slightly, extending a long-term trend.

Household borrowing eases

The first positive saving rate (0.3%) of 2005 was in line with slower growth in personal expenditure relative to disposable income. Nevertheless, the growth in household debt continued to outpace that of income, rising to 108.4 percent this quarter from 107.9 percent in the previous quarter. Debt servicing charges remained stable at about 8% of personal disposable income, so that households paid eight cents towards debt interest charges out of every dollar of disposable income.

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Corporations continue to build surpluses

The profit-driven corporate surplus widened further in the fourth quarter, with corporations continuing to supply increasing amounts of funds to the rest of the economy.

Corporate surplus advances further

The continued accumulation of undistributed profits has reduced the dependence of corporations on borrowed funds to finance non-financial investment.

Borrowing of non-financial private corporations weakened, suggesting a further decline in the ratio of debt-to-equity.

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Government borrowing up

Borrowing by the government sector as a whole was up in the fourth quarter, led by provincial governments. Provincial governments issued both bonds and short-term paper in the quarter. As the federal government’s surplus continued to rise, the demand for funds was sustained only by issues of money market instruments.

Total government borrowing up marginally

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Year-end review

For the year as a whole, total funds raised in 2005 were up 18% compared to 2004. Household demand for funds translated into increased borrowing in the form of both mortgages and consumer credit, as consumers dis-saved in the year with expenditure exceeding income. The expanding corporate surplus reached new highs, resulting in a further strengthening of business balance sheets.

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Statistical tables

• Financial market summary table
• Sector accounts - Persons and unincorporated businesses
• Sector accounts - Corporations and government business enterprises: Total
• Sector accounts - Government
• Sector accounts - Non-residents

Information on methods and data quality available in the Integrated Meta Data Base: 1804.