National balance sheet accounts

Second quarter 2005

Highlights

Note to readers

Growth in national net worth accelerated

National net worth reached $4.4 trillion by the end of the second quarter, or $135,000 per capita. The gain in net worth resulted from an increase in national wealth (economy-wide non-financial assets) as well as a further reduction in net foreign debt. Growth in national net worth accelerated to 1.6% in the second quarter, largely reflecting stronger growth in national wealth while net foreign debt declined more modestly than during the first quarter. Growth has averaged 1.4% over the past ten quarters.

Growth in national net worth accelerated

Canadians' net indebtedness to non-residents (the amounts owing to non-residents less the assets held by Canadians abroad) fell in the second quarter, but at a slower pace than in the previous period, resulting in the third consecutive decline. Canadian assets abroad, which are generally denominated in foreign currencies, grew, helped by the depreciation of the Canadian dollar against the U.S. dollar during the quarter, while Canadian liabilities to non-residents grew more modestly.

The stronger performance of the economy in the second quarter was reflected in the acceleration in the growth of national wealth (+1.5%). Overall, the increase in the value of residential real estate accounted for more than half of the increase in national wealth in the quarter. Strength in the resale market and renovation activity as well as more modest growth in new home construction contributed to growth in residential real estate. Increases in business machinery and equipment as well as in non-residential structures were also notable contributors to the gain in national wealth

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Household net worth gains continue to be driven by real estate and equities

The personal saving rate was below zero in the quarter. Even though saving was negative, household net worth continued to advance (+1.8%) at a stronger pace than in the previous quarter.

Gains in the market value of residential real estate and of equities contributed almost equally to the change in household net worth. Stock market advances boosted the value of personal sector share holdings and the sustained housing boom added to the value of household residential real estate. Increases in household assets, however, were partially offset by expanded liabilities.

Households’ appetite for debt grew with demand for consumer credit and mortgage funds up from the previous quarter. Supported by sustained low interest rates, the growth in total household debt continued to outpace that of personal disposable income. This resulted in a debt to income ratio of 107.8 percent in the second quarter, up from 107.1 percent in the first quarter. Canadian households carry about $1.08 in debt for every dollar of their disposable income. Also, the ratio of household debt to net worth edged up to 18.1% in the quarter.

Household leverage edged up

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Corporate debt-to-equity edged down

Since 2000, corporations have generated more funds from internal operations than they required to finance their non-financial capital acquisition. As a result of this profit-driven string of surpluses, the corporate sector has been a net lender to the rest of the economy and has also used these funds to restructure their balance sheets, largely through paying down debt.

For non-financial private corporations, the ratio of debt-to-equity (at book value) edged down in the quarter extending its long term trend.

Corporate leverage continued to ease

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Government debt-to-GDP at twenty year low

Government net debt (total liabilities less total financial assets) edged down as the government sector registered another surplus in the second quarter. Net government debt as a percentage of GDP declined further, reaching twenty year lows where net debt corresponds to roughly half of GDP.