Highlights

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Second quarter 2007

Note to readers

National net worth reached $5.3 trillion by the end of the second quarter of 2007, or $162,200 per capita. National net worth expanded by $86 billion (+1.6%) in the second quarter, growing less than any of the previous six quarters.

Chart H.1 Growth in national net worth slows

National wealth (economy-wide non-financial assets) grew 2.3% in the second quarter, abetted by strong economic growth during the quarter. Residential real estate continued to be the major contributor to growth in national wealth, accounting for over half of the gain.

National saving led by governments and corporations contributed to the advance of national net worth in the second quarter. Strong stock markets and residential real estate prices also continued to support the increase in national net worth. However, this gain in the second quarter of 2007 was notably restrained by an increase in Canadians’ net foreign indebtedness (with marketable securities on a market value basis). The revaluation caused by a sharp appreciation of the Canadian dollar had a devaluing effect on foreign assets held by Canadians, contributing to Canadians’ increased net indebtedness. Foreign acquisition of Canadian corporate assets was also a factor in increased Canadian liabilities to non-residents.

Chart H.2 Saving and revaluations drive change in national net worth

Household net worth gains ease further

Growth in household net worth continued to slow, but still grew 1.9% in the second quarter. Non-financial assets advanced at twice the rate of financial assets, but the growth in liabilities (+2.8%) outpaced that of assets (+2.0%).

The value of financial assets grew at a reduced pace in the second quarter, in part due to the dampening effect of the sharply appreciating Canadian dollar on foreign currency-denominated investments held in mutual funds and pension plans. Nonetheless, pension assets and equities (including mutual fund units), as well as deposits, were the main contributors to growth in financial asset holdings of the household sector during the quarter.

Residential real estate grew slightly faster than in the first quarter, providing the bulk of the increase in non-financial assets. This reflected its relative size among household assets, along with sustained strength in new housing construction and in re-sale activity in the second quarter.

Household debt, the sum of mortgage and consumer credit, accelerated sharply over the second quarter of 2007, outpacing growth in personal disposable income. The strong rise in household debt reflects robust spending on residential real estate and consumer goods during the quarter. This, combined with slackened growth in asset values, were factors behind the rise in the household debt-to-net worth ratio to 17.7%.

Chart H.3 Household leverage rises

Non-financial corporate leverage falls

In the second quarter, corporations experienced conditions of sustained growth in net saving, steady business investment and appreciating stock prices. To meet their financing needs, private non-financial corporations turned away from credit market debt and towards share issuance, resulting in a decrease in corporate leverage and resuming the long-term downward trend in the debt-to-equity ratio.

Chart H.4 Corporate leverage resumes downward trend

Total government debt further reduced

The surplus of all levels of government expanded in the second quarter, and with increases in financial assets coinciding with a reduction in liabilities, the total government net debt (total liabilities less total financial assets) fell for a 13th consecutive quarter. The decrease in total liabilities was led by a significant reduction in short-term paper obligations of the federal government. The net retirement of Government of Canada and provincial government bonds also contributed to this public debt reduction. Net government debt as a percentage of gross domestic product (GDP) declined further, representing less than half of GDP, compared to almost 90% a decade ago.

Asset growth of financial institutions slows

Financial institutions, who are traditional net lenders to other sectors of the economy, saw growth in their financial assets decelerate during the second quarter. Sectors primarily involved in investment activities (such as trusteed pension plans and mutual funds) felt the impact of the appreciating Canadian dollar though the devaluation of their foreign investment portfolios. This revaluation effect was partially offset by the increased mortgage and consumer credit holdings of sectors primarily involved in lending activities, such as chartered banks.

Table H.1 National balance sheet accounts