Financial flows

Second quarter 2006

Note to readers

Highlights

Total funds raised by domestic non-financial sectors on credit markets amounted to $89.5 billion in the second quarter of 2006 (seasonally adjusted at annual rates), down sharply from the first quarter of 2006. This reflected a significant reduction in public sector debt and an easing in the demand for funds by the private sector. The ratio of total funds raised by households and non-financial private corporations to final domestic demand was 9.4% in the second quarter, a drop from 10.4% in the previous quarter.

Total funds raised by all domestic non-financial sectors fall back

The correction in the Toronto stock market was a highlight of the quarter. Financial markets were further marked with rising interest rates, including mortgage rates and bond yields. The Canadian dollar continued to gain strength, closing the quarter just under the 90 cents mark.

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Household borrowing remains steady

Household borrowing remained steady in the second quarter. Mortgage demand eased, reflecting slower residential investment. While overall consumer spending remained strong, weakness in expenditures on durable goods — in particular motor vehicles — translated into slower consumer debt growth.

Total household debt, the sum of mortgages and consumer credit, edged up. Debt amounted to 109.2% of personal disposable income. However, debt servicing charges remained stable at about 8% of personal disposable income.

The saving rate was 1.0% in the second quarter following the special pension contribution-driven hike in the first quarter. Correspondingly, household financial assets accumulated at a slower pace, especially for pension assets and shares (including mutual funds).

Household borrowing steady

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Corporations continue to save in excess of their capital spending needs

Corporations continued to internally generate more than enough funds to finance strong fixed capital investment, which was led by investment in machinery and engineering structures as well as in inventories in the second quarter. As a result, the corporate sector maintained its position as net lenders to the rest of the economy. Demand for funds by non-financial private corporations was correspondingly down in the quarter, reflected in bonds and equities. Net new share issues fell back after a strong first quarter, a likely impact of stock price declines.

Corporate net lending continues

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Government surplus up, borrowing down

In the second quarter, the government sector surplus widened substantially, and government debt was repaid on a net basis. In particular, the federal government redeemed short-term debt and both the federal and provincial governments reduced bond debt. This net repayment reflected reduced current expenditures in the quarter combined with stable capital finance requirements.

Total government marketable debt reduced

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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.