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National net worth advanced 1.0% (seasonally adjusted) in the first quarter of 2003, compared to a 1.9% gain in the previous quarter. The slower growth in the quarter was driven by a significant increase in the net foreign liability – what Canadians owe to non-residents less what they owe to us – which offset the increase in national wealth. The rise in net foreign debt was related to the appreciation of the Canadian dollar which had a larger impact on Canada’s foreign currency denominated assets than on foreign currency-denominated liabilities. Strong fourth quarter growth in national net worth was also related to net foreign debt, which had declined sharply.
National net worth reached $3.8 trillion or $120,900 per capita by the end of the first quarter of 2003. Per capita worth was up 0.6% from the fourth quarter of 2002 and 5.1% from the first quarter of 2002.
National balance sheet accounts1
Advance in national wealth reflected strength in the housing market
National wealth (non-financial assets such as houses, automobiles, land, as well as business inventories and fixed capital) stood at $4.0 trillion at the end of the first quarter, advancing at a somewhat slower pace (+1.5%) than in the previous quarter. Growth arose principally from gains in the value of residential real estate, reflecting strong investment in new housing construction and the impact of substantial demand in the resale market. Strong non-farm inventory accumulation in the first quarter also contributed to growth in national wealth. The stock of consumer durable goods grew at a much slower pace, in line with the decline in expenditures on certain big-ticket items in the quarter, in particular automobiles.
Debt growth dampened by stronger Canadian currency
Total credit market debt (short-term paper, loans, mortgages and bonds) was unchanged from the previous quarter. This was the result of typical lower seasonal demand for funds in the first quarter, but also from the impact of an appreciating Canadian dollar. Debt growth was constrained by lower values of liabilities denominated in foreign currencies in the corporate and government sectors.
Corporate balance sheets strengthened further
Significantly higher undistributed earnings coupled with lower capital spending, pushed the corporate sector into a further huge surplus position in the first quarter following twelve unprecedented quarters of surplus. This allowed firms to continue to restructure their balance sheets.
Among non-financial private corporations, the debt-to-equity ratio declined sharply for a fourth consecutive quarter, extending its long-term slide. Strong profits combined with a modest demand for funds and the reduction of foreign currency-denominated debt accounted for the decline in leverage in the quarter. In addition, the ratio of short-term debt to long-term debt also declined further, as businesses took advantage of the low interest rates that prevailed over most of the quarter and continued to replace loan liabilities with bonds.
Household net worth advanced again
Household net worth advanced, but at a slower pace than in the fourth quarter. Net worth was led by gains in the value of household non-financial assets, in particular residential real estate in the first quarter. This was a continuation of the trend set in 2002, and reflected the boom in the housing market.
The housing boom also affected the demand for funds in the personal sector. The ratio of consumer credit and mortgage debt to personal disposable income rose to a new high of 99.0% (seasonally adjusted).
Household financial asset growth was constrained by declines in pension and mutual fund assets, reflecting in part the decline in value of foreign currency-denominated assets of these institutional investors.
Government net debt edged up, but continued to decline relative to Gross Domestic Product
Government net debt edged up in the quarter, reflecting the substantial narrowing of the combined surplus of the government sector, as well as other changes in assets and liabilities. Nevertheless, government sector net debt fell further relative to gross domestic product (seasonally adjusted), making for the fifth consecutive quarter of decline in this ratio. With the exception of two quarters of increases, this ratio has been in a steady decline since the second quarter of 1996.