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13-214-XIE
National balance sheet accounts
Fourth quarter 2003

Highlights

Note to readers

National net worth reached $4.0 trillion by the end of the fourth quarter 2003, or $124,700 per capita, up from $123,000 in the previous quarter.

Advance in national net worth reflects lower net foreign debt and steady growth in national wealth

National net worth grew 1.6% (seasonally-adjusted) in the fourth quarter, at a faster pace than in the previous quarter. The decline in net foreign debt was a major factor, as what non-residents owe to Canadians rose at a significantly faster pace than what Canadians owe to non-residents.

National net worth
Chart:  National net worth

This quarter the decline in net foreign debt was largely driven by a sharp increase in Canadian direct investment assets abroad, whereas in the third quarter it reflected principally non-resident sales of Canadian bond liabilities. Notably, this followed two quarters of significant currency appreciation driven increases in net foreign debt in the first half of the year.

The gain in national wealth (+0.9%, seasonally-adjusted) also contributed to the advance in national net worth in the fourth quarter. However, the growth rate of non-financial assets eased in the fourth quarter, in line with both the drop in consumer spending on durable goods and a softer residential resale market.

Household net worth advanced, but debt load also increased further

The growth in household net worth was 1.1% (seasonally-adjusted) compared to 0.8% in the previous quarter, as the growth in assets exceeded that of liabilities by a small margin.

The demand for funds in the fourth quarter, while lower, resulted in households having $102.9 in debt (consumer credit and mortgages) for every $100 of disposable income. However, low interest rates over the quarter would have moderated the increase in the debt burden.

Household debt burden rises further
Chart:  Household debt burden rises further

Corporations’ decline in leverage reflects continued strength in undistributed earnings

Strong undistributed earnings generated a further significant net lending position in the quarter, as the finances of corporations continued to improve. Corporations have been generating a surplus and supplying funds to the economy for over 13 consecutive quarters.

For non-financial private corporations, leverage decreased further in the fourth quarter. The debt to equity ratio extended its long-term downward trend. Earnings, combined with robust equity issues (including income trust issues), which partly reflected improved share prices, contributed to the strengthened financial position. Credit market debt (loans, bonds, short-term paper) edged up, led by significant issues of corporate bonds; however, these were partly offset by the impact of an appreciating dollar on U.S. dollar-denominated debt. Notably, the ratio of short-term debt to long-term debt continued to trend downward and liquidity improved further in the sector.

Corporate leverage continued to slide
Chart:  Corporate leverage continued to slide

Governments’ financial position improved

Net debt declined overall and in both the federal and provincial government levels, reflecting the surplus/deficit positions of those sectors respectively. Government net debt declined relative to GDP, but this drop was more pronounced at the federal level. This reflected a 0.9% reduction in federal credit market debt outstanding.

Annual Review, 2003

Financial position of the sectors varied, with households losing ground relative to corporations and governments

Household assets grew more slowly than in 2002, reflecting less robust housing markets and lower saving. The drop in saving arose mainly from weaker income growth, and resulted in sustained borrowing and reduced accumulation of financial assets. Asset growth was also constrained by the losses on foreign currency investments of investment and pension funds, due to a rapidly appreciating Canadian currency relative to the U.S. dollar. Indebtedness rose at a slower rate than last year but still managed to push the debt-to-income ratio to new highs, given the deceleration of income growth. Household net worth advanced at a slower pace (+3.2%) in comparison to 2002 (+5.3%).

The financial health of the corporate sector improved in 2003, reflecting the massive gains in undistributed profits relative to weak growth in non-financial capital acquisition. The resulting and record net lending position allowed for further re-structuring of balance sheets as equity continued to expand relative to debt, with corporate leverage falling to levels not seen since the 1970’s.

In the government sector, the expansion of the overall surplus combined with reductions in the value of foreign currency-denominated debt, was reflected in a drop in net debt and an increase in net worth.

National Balance Sheet improved, but at a more modest pace than in 2002

The combination of the household, corporate and government balance sheet provides broader perspective on the economy. National saving grew at a slower rate than in 2002, while prices declined for a number of non-financial assets over the year. This, combined with an increase in net foreign debt, reduced the growth rate of national net worth to 4.6% from 6.4% in 2002.

Correspondingly, national wealth grew 4.9% in 2003, down from 5.9% last year. This slower growth was particularly evident in two of the non-financial assets. Lower gains in residential real estate, was in line with a housing market that cooled a bit from its torrid pace in 2002. Much lower increase in consumer durable stocks reflected slower spending growth for most big ticket items, in particular for automobiles where expenditure declined.

Natural resource assets increased sharply in 2003

The value of selected natural resource assets – timber, energy and mineral resources – rose 18.0% to $778 billion in 2003. This resulted almost exclusively from a 37.8% increase in the value of energy resource assets, which account for more than 50% of the resource wealth. Higher natural gas prices were the major factor. The value of timber stocks, which account for near 40% of natural assets, rose more modestly (+3.5%).

A broader measure of national wealth, including natural resources, rose 6.8% compared with 4.7 in 2002.

National balance sheet accounts1

  Third quarter 2002 Fourth quarter 2002 First quarter 2003 Second quarter 2003 Third quarter 2003 Fourth quarter 2003 2002 2003
Not seasonally adjusted, billions of dollars
National net worth
National wealth
3,921
3,968
4,010
4,077
4,118
4,164
3,968
4,164
1.1
1.2
1.1
1.7
1.0
1.1
5.9
4.9
Net foreign debt
-204
-184
-214
-233
-219
-206
-184
-206
...
...
...
...
...
...
...
...
National net worth
3,717
3,784
3,796
3,844
3,900
3,958
3,784
3,958
5.4
6.4
5.4
4.9
4.9
4.6
6.4
4.6
National net worth per capita (dollars)
118,100
120,100
120,300
121,500
123,000
124,700
120,100
124,700
1.2
1.7
0.2
1.0
1.2
1.4
5.4
3.8
  Seasonally adjusted, billions of dollars
Net worth
Personal sector
3,496
3,560
3,562
3,604
3,633
3,674
3,560
3,674
0.1
1.8
0.1
1.2
0.8
1.1
5.4
3.2
Corporate sector
429
431
438
431
438
448
431
448
7.3
0.5
1.6
-1.6
1.6
2.3
5.6
3.9
Government sector
-211
-207
-197
-185
-176
-165
-207
-165
...
...
...
...
...
...
...
...
National net worth
3,713
3,784
3,803
3,851
3,895
3,958
3,784
3,958
1.2
1.9
0.5
1.3
1.1
1.6
6.4
4.6
1 The first line is the series itself expressed in billions of dollars. The second line, italicized, is the period to period percentage change.
... Not applicable


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