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Third quarter 2008
Financial flows note to readers
Overview
Funds borrowed and equity issuances on financial markets by domestic non-financial sectors (seasonally adjusted at annual rates) weakened in the third quarter of 2008, to $230 billion.
The reduction in funds borrowed by the household sector was partially offset by increased borrowing by non-financial corporations, which accounted for just over one-third of all funds raised.
Chart E.1 Total funds raised by domestic non-financial sectors slows
Canadian stock exchanges were down in the third quarter of 2008, as commodity prices decelerated and additional concerns developed regarding the stability of financial markets. The S&P TSX Composite fell more than 18% in the quarter, the largest quarterly decline since mid 1998 (-24%). The downdraft in energy commodity prices, seen late in the quarter, created downward pressure on the resource heavy S&P TSX Composite. The Canadian dollar depreciated 3.1% in the quarter relative to its US counterpart, but stayed well above ninety cents per US dollar throughout the entire quarter.
Although the Bank of Canada’s key trend setting rate, the bank rate, remained unchanged during the quarter, yields on short-term Treasury Bills declined. The 5-yr conventional mortgage rate decreased 30 basis points to 6.85% with overall bond yields also falling.
Household sector
Chart E.2 Household borrowing drops
The quarter marked a decrease in mortgage borrowing, contributing to a slowdown in overall household borrowing. Despite lower borrowing costs, net new mortgage flows were lower for the third consecutive quarter, a three quarter trend last observed in 1998. Slower mortgage activity during the 3rd quarter was coincident with declines in the resale housing market.
Consumer credit flows were also lower in the third quarter of 2008, but borrowing remains at high levels since the fourth quarter of 2007. Personal expenditure growth moderated during the quarter with expenditures on new and used motor vehicles declining.
Nevertheless, household debt in the form of mortgages and consumer credit continued to grow faster than personal disposable income, as labour income slowed. Using this measure, the household debt-to-income ratio reached 126.6% in the third quarter of 2008.
Corporate sector
Chart E.3 Corporate sector net lending increases
Corporations continued to record strong profit growth in the third quarter, while remaining a net lender to the rest of the economy.
However, non-financial corporations increased their borrowings during the quarter, accounting for just over one-third of all funds raised, led by an increase in bank loans. Funds raised were principally used to finance fixed capital investments and inventories as well as the acquisition of financial assets. Overall borrowing growth was dampened by a reduction in non-financial corporations’ stock and bond issuances.
Financial institutions’ borrowing decelerated again this quarter, as their net new issuance of short term paper remained negative for a fourth consecutive quarter.
Government sector
Chart E.4 Government’s borrowing less
Borrowing by overall government decreased significantly in the third quarter, a reversal from last quarter. Decreased government demand for funds included the retirement of federal bonds and a slowdown in federal short term paper issuance. This was partially offset by the demand for new financing by other levels of government, led by net issuances of short-term paper. Government saving decelerated from the previous quarter. Overall, the government sector remained a net lender to the rest of the economy.
Data tables
- Table E.1 Financial market summary table
- Table E.2 Sector accounts - Persons and unincorporated businesses
- Table E.3 Sector accounts - Corporations and government business enterprises: Total
- Table E.4 Sector accounts - Government
- Table E.5 Sector accounts - Non-residents
Information on methods and data quality available in the Integrated Meta Data Base: 1804.
