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Fourth quarter 2007

Financial flows note to readers


Total funds raised by domestic non-financial sectors on financial markets amounted to $225.0 billion in the fourth quarter of 2007 (seasonally adjusted at annual rates), up from the third quarter of 2007. Households continued to account for the largest share of the private sector's demand for funds. After two consecutive quarters of debt reduction, the overall government sector's demand for funds returned. The modest debt reduction registered by the federal government was more than offset by the continued borrowing by other levels of government.

Chart E.1 Overall demand for funds continues to increase
Chart E.1 Overall demand for funds continues to increase

Key financial market indicators reflected the uncertainty in the Canadian economy in part due to the weakening United States economy. The S & P/Toronto Stock Exchange Composite Index was volatile, posting a record level in October, only to tumble in the last two months of the quarter. With the sustained demand for Canadian-produced resources such as crude oil and metals, alongside rising oil prices and the weakening American currency, the Canadian dollar rose above par and finished the quarter at about par with its U.S. counterpart. The bank rate was cut by 25 basis points in December after remaining unchanged during the first two months of the quarter. However, mortgage rates increased slightly from the third to the fourth quarter. After recording moderate gains during the third quarter, bond yields showed a slight decline during the last two months of the quarter.

Household sector

The household sector maintained its strong demand for new financing in the fourth quarter. As the country's housing market remained strong, with both new housing construction as well as renovation activities posting moderate gains, mortgage borrowing led the household sector's demand for funds. Consumer credit likewise stayed robust with personal consumption expenditure on goods and services increasing significantly.

Household debt in the form of mortgages and consumer credit edged up slightly at 116.4% of personal disposable income. Debt servicing charges remained unchanged at about 8% of personal disposable income.

The sector continued to boost its financial assets, though at a slower pace, notably through investment in deposits and growth in pension assets.

Chart E.2 Growth in household borrowing eases
Chart E.2 Growth in household borrowing eases

Corporate sector

The corporate sector's demand for funds increased in the quarter as it continued steadily to invest in plant and equipment as well as in inventories. The corporate sector remained a net lender to the rest of the economy, as undistributed corporation profits rose in the fourth quarter.

The private non-financial corporate sector remained active in the financial markets, with loans and net new share issuances being predominant sources of funds in the fourth quarter.

Financial institutions continued to increase their overall financial assets with significant increases in mortgage assets and holdings of foreign equities more than compensating for reductions in short-term paper.

Government sector

The federal government maintained its trend of debt reduction in the fourth quarter, though at a much slower pace, with continued net retirement of Government of Canada bonds surpassing net issuance of short-term paper. However, this was more than offset by the continued demand for new financing by other levels of government, led by net issuance of short-term paper and provincial bonds. With revenue remaining steady, the overall government sector remained a net lender to the rest of the economy.

Chart E.3 Total government borrowing resumes
Chart E.3 Total government borrowing resumes

Data tables

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