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Growth in national net worth slowed
National net worth edged up 0.5% in the third quarter, slowing markedly from the second quarter (+2.7%). While national wealth grew, these gains were largely offset by a sharp increase in net foreign debt, which resulted from the impact of valuation changes brought about by a stronger Canadian currency.
National net worth growth decelerated
While slowing from the 1.7% increase of the second quarter, national wealth grew 1.5%, exceeding the average growth of the previous ten quarters. A combination of increased investment and higher prices of residential real estate assets accounted for more than half of the increase in the third quarter. Build up in inventories also had an impact, as corporations invested heavily in inventories.
Canadians’ net indebtedness to non-residents grew sharply in the quarter, as the value of Canadian direct and portfolio investments abroad declined more than the value of Canadian liabilities to non-residents. While net transaction flows of Canadian direct and portfolio investments abroad were positive, they were more than offset by reductions of foreign-currency-denominated assets related to a stronger Canadian dollar. The Canadian dollar advanced against the U.S. dollar and all other major currencies in the third quarter.
Change in household net worth driven by real estate
Growth in household net worth slowed to 0.9% in the quarter. While gains in household residential real estate assets were the largest contributor to growth in national wealth, growth decelerated from the second quarter. In addition, financial asset growth slowed.
Household leverage crept up
Demand for funds also slowed, but only marginally. As a result, households had $105.1 in debt (consumer credit and mortgages) for every $100 of their disposable income, an increase from the second quarter. The ratio of household debt to net worth also increased for the second consecutive quarter, but household sector leverage remained relatively low with debt representing 20.4% of net worth by quarter end.
Corporate debt-to-equity continued falling trend
Since 2000, corporations have generated more funds from internal operations each quarter than they required to finance non-financial capital investment. As a result of this string of surpluses, the corporate sector has been a net lender to the rest of the economy and has used these funds to restructure their balance sheets, largely through paying down debt. For non-financial private corporations, this was facilitated in the third quarter by a weaker demand for funds and by the impact on foreign-currency debt of a strengthening of the Canadian dollar. The ratio of debt to equity (book value) continued its downward trend, reaching new low in the third quarter as it has done in each quarter over of the last three years.
Corporate debt to equity continued down
Government debt-to-GDP at twenty year low
Government net debt (total government financial assets minus total government financial liabilities on a book value basis) dropped sharply reflecting both an overall government sector surplus position in the third quarter as well as the reduction of foreign currency denominated government debt related to the appreciation of the Canadian currency. Net government debt as a percentage of GDP fell for the eleventh consecutive quarter and has reached levels last seen twenty years ago.
National balance sheet accounts 1
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