Economic and Social Reports
Risks to Canada’s corporate sector as interest rates rise

Introduction

As interest rates rise to curb inflation, so too do risks associated with higher levels of debt. While much has been written about elevated levels of household debt, less attention has been paid to the growth in Canadian corporate debt and its implications for the business and financial sectors.

Elevated debt balances coming out of the COVID-19 pandemic remain a key source of uncertainty for many businesses, especially as the costs of servicing debt rise. According to the most recent Canadian Survey on Business Conditions, one quarter of businesses are unable to take on more debt, with many citing unfavourable interest rates as a contributing factor.^Note Almost four in ten businesses in the third quarter of 2023 anticipated that rising interest rates and debt costs will be an obstacle in the coming months. The Bank of Canada’s third quarter Business Outlook Survey suggests that many businesses are scaling back their planned outlays on machinery and equipment (M&E) as financing costs rise.^Note Indeed, real outlays on industrial M&E and on computers and peripheral equipment have both declined in three of the last four quarters and are currently below pre-pandemic levels.

Business investment will need to recover to help arrest Canada’s deteriorating productivity performance. After compositional changes in the workforce artificially boosted labour productivity during the initial stage of the COVID-19 pandemic, productivity has fallen off markedly, edging lower in eleven of the last twelve quarters. Business productivity has now been below pre-COVID levels since the third quarter of 2022. Given the strong, long-run correlation between productivity and living standards, strategies aimed at bolstering productivity, whether through improvements in capital intensity or labour quality, are likely to continue to be important determinants of economic prosperity. In that context, factors that can be expected to influence investment behaviour, including basic changes in the composition and costs of debt, warrant careful examination.

This paper provides an overview of how Canadian corporate borrowing has evolved in recent decades and what this may mean for risk going forward. A second paper, to be released in the coming months, will take a more detailed look at the buildup of debt on Canada’s corporate balance sheet, as companies continue to adjust to higher borrowing and debt-servicing costs in the wake of the pandemic.

Canadian corporate debt levels are the third highest in the G7

Canadian corporations carry large amounts of debt on their balance sheets. The total credit liabilities of private non-financial corporations (hereafter referred to as corporate debt) reached just over $2 trillion in July 2023, including debt securities and arm’s-length loans.^Note While this measure of credit market debt is preferred when focusing on risk and trends in Canada, it is not possible to use it for international comparisons. Another broader measure of corporate debt is total financial liabilities excluding equity, which in Canada was closer to $4 trillion in the second quarter of 2023. Total financial liabilities excluding equity represented roughly 160% of Canada’s gross domestic product (GDP) as of the second quarter of 2023, above the 125% average for the period from 2000 to 2019. By the end of 2022, Canadian corporations had the third-highest debt-to-GDP ratio in the G7, after France (206%) and Japan (170%).^Note

Credit liabilities and total financial liabilities are correlated, and the most important difference between the two is that the latter includes loans between parents and subsidiaries, as well as other accounts payable.

While Canadian corporations had the third-highest debt-to-GDP ratio in the G7, they have also had the top interest expense to disposable income ratios in the G7 since 2013 (Figure 1). This ratio measures the ability of corporations to meet their debt obligations, take on new financing and maintain profitability. Corporations with higher ratios tend to have greater difficulty generating sustainable profits, which could require reducing other expenses to strengthen their financial position. In 2015 and 2016, when declines in crude oil prices influenced incomes for oil and gas extraction corporations, the interest expenses of Canadian non-financial corporations accounted for over half of their disposable income. Afterwards, the ratio trended lower and reached 29.5% in 2021, mainly reflecting lower interest rates. By contrast, corporations in the United Kingdom, Italy, Germany and Japan had ratios below 15% in 2021, while corporations in France (23.9%) and the United States (23.1%) had ratios closer to that of Canadian corporations.^Note

Data table for Chart 1



Data table for Chart 1
Table summary
This table displays the results of Data table for Chart 1 2015, 2016, 2017, 2018, 2019, 2020 and 2021, calculated using percent units of measure (appearing as column headers).

	2015	2016	2017	2018	2019	2020	2021
	percent
Canada	53.4	53.3	50.1	49.3	45.7	39.2	29.5
France	33.5	31.2	29.7	29.1	26.0	30.1	23.9
Germany	10.7	9.6	9.8	9.7	9.0	7.7	6.6
Italy	26.9	19.8	15.9	12.6	12.4	13.1	10.0
Japan	5.9	4.9	4.7	5.2	5.1	4.4	3.6
United Kingdom	25.2	23.5	19.1	22.3	19.2	20.4	14.4
United States	27.3	30.5	31.4	21.5	27.4	27.5	23.1
Source: OECD. Stat, dataset 14A. Non-financial accounts by sectors.

Majority of Canadian corporate debt in the form of bonds and bank loans

Canada’s corporate debt has grown steadily since the early 1990s, except for a few brief periods, including the 2008-2009 recession and the COVID-19 pandemic. During the 1990s, corporate debt expanded by about 5% per year, and then slowed slightly from 2000 to 2009 (Table 1). Corporate debt grew rapidly from 2010 onwards (increasing on average by 7.4% per year from 2010 to 2019), with a slight acceleration more recently (rising over 8% in 2021 and 2022). A considerable amount of this growth came from service industries, especially real estate.

Data table for Chart 2



Data table for Chart 2
Table summary
This table displays the results of Data table for Chart 2 Total credit liabilities, Non-mortgage loans, Debt securities and Mortgage loans, calculated using billions of dollars units of measure (appearing as column headers).

	Total credit liabilities	Non-mortgage loans	Debt securities	Mortgage loans
	billions of dollars
1990
January	310.29	183.42	58.78	68.09
February	313.67	185.90	59.97	67.80
March	314.78	185.66	60.51	68.61
April	317.88	187.18	61.22	69.48
May	319.71	187.66	61.72	70.34
June	322.58	189.30	62.17	71.11
July	325.15	190.14	63.26	71.76
August	325.27	188.71	64.16	72.40
September	327.24	189.46	64.66	73.12
October	328.41	189.12	65.91	73.38
November	328.83	187.93	67.32	73.58
December	329.32	187.79	67.70	73.83
1991
January	328.71	187.11	67.49	74.12
February	330.76	188.74	67.56	74.46
March	329.58	187.60	67.17	74.81
April	329.40	186.24	66.82	76.35
May	330.11	185.47	66.60	78.04
June	329.95	183.60	66.69	79.66
July	330.22	183.49	67.30	79.43
August	329.34	182.34	67.69	79.31
September	327.41	180.91	67.36	79.14
October	329.19	182.33	67.78	79.08
November	331.47	183.93	68.52	79.02
December	329.27	182.31	67.95	79.00
1992
January	329.06	181.85	67.90	79.31
February	330.68	182.89	68.33	79.47
March	329.40	181.71	68.03	79.67
April	329.00	180.40	68.64	79.96
May	328.99	178.87	69.68	80.44
June	332.61	180.85	70.97	80.79
July	331.92	179.68	71.22	81.02
August	330.46	177.96	71.25	81.25
September	332.04	179.24	71.31	81.49
October	334.31	180.64	71.30	82.37
November	335.08	180.99	71.03	83.06
December	329.57	175.49	70.34	83.75
1993
January	331.28	176.56	70.60	84.12
February	331.03	176.29	70.93	83.81
March	326.67	171.72	71.65	83.30
April	327.24	170.99	72.97	83.28
May	329.50	171.69	74.51	83.30
June	330.58	171.57	75.75	83.25
July	331.14	170.48	77.63	83.03
August	334.41	172.17	79.53	82.71
September	338.67	173.92	81.23	83.52
October	337.90	172.71	82.32	82.87
November	339.98	173.18	83.09	83.71
December	341.05	173.92	84.29	82.83
1994
January	341.65	170.85	88.66	82.14
February	347.52	172.96	93.11	81.45
March	353.03	174.03	98.21	80.79
April	358.60	178.08	99.36	81.16
May	357.39	177.05	99.26	81.08
June	357.10	176.42	99.77	80.91
July	355.00	175.35	99.83	79.82
August	352.87	174.33	99.84	78.70
September	352.83	175.97	99.00	77.87
October	354.30	177.72	99.22	77.36
November	354.11	177.51	99.75	76.85
December	358.02	181.17	100.49	76.36
1995
January	358.02	180.46	101.49	76.07
February	360.87	183.06	102.11	75.70
March	364.68	187.04	102.42	75.22
April	365.69	188.85	102.35	74.48
May	365.52	189.32	102.61	73.58
June	364.78	189.32	102.63	72.83
July	365.73	190.14	102.95	72.63
August	366.91	190.65	103.82	72.45
September	363.50	187.09	104.18	72.23
October	367.70	189.90	106.10	71.70
November	372.69	193.35	108.29	71.05
December	375.99	195.77	109.67	70.55
1996
January	376.61	195.89	110.64	70.09
February	380.71	198.87	112.18	69.67
March	385.65	202.92	113.59	69.14
April	383.46	200.16	114.29	69.01
May	385.40	200.52	116.07	68.81
June	384.95	198.42	117.88	68.65
July	386.25	198.78	118.86	68.61
August	386.77	198.35	119.94	68.49
September	386.97	198.44	120.16	68.37
October	388.12	198.15	121.61	68.36
November	390.51	198.45	123.64	68.41
December	391.87	197.69	125.67	68.52
1997
January	394.38	198.11	128.26	68.01
February	399.11	201.13	130.59	67.40
March	406.33	207.74	131.86	66.74
April	410.72	211.26	132.98	66.48
May	413.98	213.98	133.78	66.23
June	416.57	216.15	134.47	65.95
July	418.33	216.36	136.54	65.43
August	422.74	218.51	138.87	65.37
September	426.01	220.64	140.26	65.11
October	431.11	221.89	144.27	64.95
November	432.95	220.84	147.34	64.78
December	434.87	223.15	147.05	64.67
1998
January	437.66	225.03	147.65	64.98
February	444.18	228.48	150.42	65.28
March	452.06	233.91	152.61	65.54
April	460.71	238.35	156.59	65.78
May	466.14	238.72	161.36	66.07
June	471.46	241.06	164.10	66.29
July	476.12	241.39	168.34	66.39
August	483.22	242.84	173.99	66.39
September	483.31	241.45	175.46	66.40
October	482.01	240.91	174.66	66.44
November	481.39	239.52	175.28	66.59
December	482.14	240.97	174.48	66.70
1999
January	484.01	241.55	175.91	66.56
February	487.51	240.48	180.53	66.50
March	495.33	244.65	184.23	66.45
April	494.11	243.33	185.06	65.72
May	494.28	242.81	186.50	64.97
June	491.59	239.65	187.68	64.26
July	494.59	239.71	190.06	64.82
August	497.16	239.21	192.75	65.20
September	496.38	237.16	193.56	65.66
October	498.35	239.02	193.39	65.94
November	497.95	238.01	193.76	66.17
December	500.20	241.40	192.44	66.36
2000
January	503.65	243.72	192.50	67.43
February	514.67	250.53	194.80	69.35
March	525.67	258.50	196.56	70.62
April	531.82	262.24	198.29	71.29
May	535.86	263.57	200.28	72.01
June	538.57	263.90	201.71	72.97
July	543.28	265.70	204.18	73.40
August	545.55	264.45	207.39	73.72
September	548.92	263.39	211.36	74.17
October	549.03	263.69	210.74	74.60
November	547.75	262.22	210.38	75.15
December	544.50	261.03	207.95	75.52
2001
January	551.43	265.14	209.66	76.63
February	561.64	269.59	214.26	77.79
March	574.08	275.18	219.97	78.93
April	575.36	275.65	220.24	79.48
May	576.14	272.34	223.80	80.00
June	576.51	268.29	227.56	80.66
July	580.30	268.80	230.63	80.87
August	583.04	267.36	234.98	80.70
September	586.33	270.52	235.28	80.54
October	588.40	270.75	236.77	80.88
November	589.75	265.12	243.50	81.12
December	593.32	263.25	248.40	81.66
2002
January	595.48	263.12	250.41	81.95
February	602.65	266.22	254.34	82.10
March	611.37	270.94	258.10	82.34
April	610.46	269.39	258.05	83.02
May	607.59	267.13	256.46	84.00
June	603.34	266.46	252.01	84.87
July	602.77	264.59	252.39	85.79
August	603.95	262.30	255.00	86.64
September	606.14	260.74	257.98	87.42
October	608.67	261.60	258.84	88.23
November	609.77	262.77	257.86	89.15
December	607.60	262.28	255.52	89.80
2003
January	595.46	254.50	250.71	90.25
February	589.74	250.89	248.14	90.70
March	584.90	246.67	247.12	91.10
April	580.77	245.53	243.63	91.60
May	575.54	243.97	239.16	92.41
June	572.80	242.52	237.16	93.12
July	573.74	241.59	237.87	94.29
August	572.28	239.39	237.48	95.41
September	570.00	236.64	237.01	96.34
October	572.32	236.37	238.46	97.49
November	571.26	231.50	241.06	98.70
December	571.93	230.55	241.68	99.70
2004
January	573.09	230.95	241.78	100.36
February	577.93	234.17	243.24	100.51
March	582.44	238.67	243.07	100.71
April	582.58	236.87	244.44	101.27
May	587.79	238.60	246.96	102.23
June	592.83	240.37	249.27	103.20
July	593.37	240.39	248.59	104.39
August	589.85	236.65	247.79	105.42
September	584.20	234.34	243.92	105.94
October	584.52	235.64	242.47	106.41
November	587.28	235.67	244.59	107.02
December	591.38	237.35	246.82	107.21
2005
January	588.92	233.66	247.50	107.75
February	592.02	234.88	248.61	108.53
March	595.02	235.08	250.57	109.37
April	597.79	237.06	250.91	109.82
May	600.32	238.01	251.85	110.45
June	606.63	241.94	252.75	111.94
July	608.04	243.96	250.95	113.13
August	605.94	243.17	248.48	114.29
September	604.80	243.27	245.65	115.88
October	607.11	245.38	245.79	115.94
November	604.44	241.72	246.46	116.27
December	603.93	242.56	244.06	117.32
2006
January	606.47	244.11	244.40	117.96
February	615.07	249.85	246.70	118.52
March	621.18	254.92	247.36	118.90
April	622.02	257.28	245.36	119.38
May	624.90	260.29	244.10	120.52
June	629.17	264.95	242.31	121.91
July	633.01	267.75	242.64	122.63
August	635.74	268.18	244.08	123.47
September	635.80	268.45	243.32	124.03
October	639.95	268.65	246.35	124.95
November	651.29	272.50	252.55	126.24
December	659.07	273.95	257.89	127.24
2007
January	664.19	274.21	260.12	129.86
February	676.11	280.54	263.89	131.68
March	689.93	286.23	269.61	134.09
April	693.86	290.70	268.67	134.49
May	695.49	293.39	266.27	135.83
June	694.78	296.72	261.06	137.00
July	701.29	303.90	258.84	138.56
August	707.02	309.59	257.90	139.52
September	707.46	310.19	256.60	140.66
October	714.70	313.81	258.99	141.90
November	722.43	318.59	261.00	142.85
December	732.34	326.65	261.90	143.79
2008
January	740.34	326.27	266.16	147.90
February	749.30	327.74	270.43	151.13
March	761.33	334.44	272.33	154.56
April	759.16	331.27	272.80	155.09
May	760.16	326.73	277.59	155.84
June	761.78	324.82	280.44	156.52
July	764.84	324.82	282.40	157.62
August	770.87	325.77	286.86	158.25
September	777.53	329.33	289.68	158.53
October	793.24	341.54	291.86	159.84
November	805.10	350.63	294.76	159.72
December	813.63	354.51	299.04	160.07
2009
January	812.48	350.49	301.88	160.12
February	819.10	352.67	306.27	160.17
March	824.58	355.34	309.37	159.88
April	813.36	347.52	305.55	160.30
May	806.21	337.23	308.19	160.79
June	806.05	332.97	311.98	161.11
July	797.68	324.39	311.50	161.79
August	789.76	319.11	308.60	162.05
September	784.40	313.42	308.21	162.77
October	779.02	308.23	307.42	163.37
November	773.85	302.51	307.54	163.80
December	771.87	299.07	308.39	164.41
2010
January	767.09	293.45	308.80	164.84
February	764.90	290.58	308.39	165.93
March	762.23	287.00	308.78	166.45
April	762.70	284.68	310.90	167.11
May	760.66	281.49	310.90	168.28
June	760.95	280.27	311.27	169.40
July	761.77	279.91	311.83	170.04
August	758.79	275.79	312.22	170.78
September	759.70	275.12	313.58	171.00
October	763.98	278.75	313.53	171.70
November	766.81	278.17	315.53	173.12
December	768.72	277.35	317.99	173.38
2011
January	775.93	281.38	320.56	173.99
February	783.10	285.85	322.45	174.81
March	790.48	291.67	322.79	176.03
April	790.64	290.15	324.34	176.16
May	790.25	288.11	326.15	175.99
June	792.11	289.02	326.57	176.52
July	802.81	293.07	332.42	177.32
August	813.37	297.45	337.88	178.04
September	821.92	302.34	341.47	178.11
October	819.61	302.30	338.55	178.76
November	815.55	298.70	337.02	179.84
December	815.94	300.70	334.78	180.45
2012
January	812.43	312.26	319.20	180.97
February	821.31	319.15	321.00	181.16
March	831.08	325.77	322.99	182.32
April	840.48	328.62	328.21	183.65
May	845.11	328.94	331.53	184.65
June	852.74	331.62	335.18	185.94
July	856.85	333.58	336.49	186.78
August	856.88	334.65	334.92	187.31
September	862.56	338.07	336.77	187.72
October	867.71	337.68	341.37	188.66
November	871.67	335.46	346.54	189.67
December	876.28	336.42	348.67	191.19
2013
January	880.79	335.65	352.28	192.86
February	893.42	342.04	356.76	194.63
March	903.90	350.16	357.24	196.50
April	919.11	358.38	363.34	197.40
May	931.89	364.89	368.49	198.52
June	953.00	376.57	376.51	199.92
July	960.24	378.01	380.14	202.09
August	965.72	378.74	384.10	202.89
September	966.26	377.55	384.99	203.72
October	971.27	376.21	389.76	205.29
November	980.66	378.85	394.95	206.86
December	983.82	376.28	398.75	208.79
2014
January	994.57	382.02	403.42	209.12
February	1,004.16	385.22	409.86	209.08
March	1,021.33	394.70	417.79	208.84
April	1,036.04	403.14	423.29	209.61
May	1,041.40	405.19	425.83	210.39
June	1,044.09	405.95	427.02	211.12
July	1,060.23	413.02	435.49	211.72
August	1,071.34	420.44	438.32	212.58
September	1,083.38	423.35	446.90	213.13
October	1,088.37	422.03	452.93	213.41
November	1,093.47	424.17	455.85	213.46
December	1,102.20	428.97	458.92	214.31
2015
January	1,099.11	437.13	446.69	215.29
February	1,117.35	438.68	462.56	216.11
March	1,167.13	448.69	501.43	217.01
April	1,157.50	452.28	488.03	217.18
May	1,173.20	459.90	495.86	217.44
June	1,182.15	467.80	495.98	218.36
July	1,202.61	469.42	513.20	220.00
August	1,207.29	470.92	515.33	221.04
September	1,221.71	475.03	524.65	222.04
October	1,216.56	473.23	520.25	223.08
November	1,219.15	473.89	521.30	223.96
December	1,239.23	484.34	530.24	224.66
2016
January	1,238.68	479.93	533.11	225.65
February	1,228.51	477.82	524.16	226.53
March	1,215.31	473.53	514.35	227.42
April	1,215.20	482.02	504.78	228.40
May	1,233.76	489.17	515.49	229.10
June	1,243.48	497.15	516.30	230.03
July	1,256.94	503.82	521.75	231.38
August	1,255.89	497.82	525.57	232.50
September	1,251.12	495.74	521.94	233.45
October	1,267.64	501.40	532.11	234.12
November	1,270.27	499.45	535.93	234.90
December	1,273.68	505.12	532.91	235.65
2017
January	1,282.25	505.48	540.68	236.09
February	1,296.87	512.40	548.59	235.87
March	1,306.05	517.83	552.85	235.37
April	1,324.75	523.94	563.70	237.12
May	1,337.82	528.95	569.60	239.27
June	1,330.38	532.26	556.88	241.24
July	1,338.38	541.04	554.89	242.45
August	1,342.78	540.67	558.72	243.39
September	1,350.65	544.64	561.74	244.27
October	1,373.61	549.34	577.45	246.82
November	1,376.03	546.66	580.05	249.32
December	1,372.21	544.74	575.48	252.00
2018
January	1,370.52	545.02	568.93	256.57
February	1,391.17	551.41	583.88	255.88
March	1,411.68	565.12	591.34	255.22
April	1,420.98	571.40	592.25	257.33
May	1,438.46	584.10	595.46	258.90
June	1,452.05	589.05	602.29	260.71
July	1,456.41	593.85	599.63	262.94
August	1,454.06	600.08	590.40	263.59
September	1,457.76	605.65	586.79	265.31
October	1,465.76	612.30	587.62	265.85
November	1,477.16	616.10	592.91	268.16
December	1,496.13	629.00	598.02	269.11
2019
January	1,480.07	624.32	586.38	269.37
February	1,487.93	629.10	588.44	270.39
March	1,514.72	644.28	598.24	272.20
April	1,535.89	655.30	607.31	273.28
May	1,548.05	662.51	612.52	273.02
June	1,534.57	658.40	600.24	275.92
July	1,544.26	666.95	600.16	277.16
August	1,546.58	663.25	604.14	279.19
September	1,554.13	663.37	610.71	280.05
October	1,550.85	659.42	609.67	281.77
November	1,554.63	661.84	609.47	283.32
December	1,559.83	669.52	604.93	285.38
2020
January	1,575.01	679.36	606.60	289.05
February	1,592.71	688.52	612.77	291.42
March	1,660.34	745.38	620.08	294.88
April	1,679.18	760.00	622.49	296.69
May	1,681.59	751.24	631.56	298.80
June	1,667.37	733.53	632.94	300.91
July	1,660.49	728.57	628.70	303.22
August	1,649.86	719.59	624.90	305.37
September	1,664.03	718.07	638.19	307.77
October	1,670.30	716.03	644.19	310.08
November	1,653.84	709.05	632.91	311.88
December	1,663.89	717.18	632.44	314.27
2021
January	1,681.30	721.56	643.79	315.95
February	1,681.61	725.44	638.60	317.57
March	1,692.02	732.13	639.95	319.94
April	1,691.66	738.96	630.06	322.64
May	1,695.26	744.80	625.64	324.83
June	1,729.32	754.58	646.02	328.72
July	1,738.50	761.13	644.85	332.52
August	1,756.40	766.25	654.66	335.49
September	1,768.65	771.94	658.50	338.20
October	1,769.12	772.75	656.86	339.51
November	1,794.41	778.95	673.64	341.82
December	1,811.82	790.67	676.91	344.24
2022
January	1,821.22	798.30	677.55	345.37
February	1,833.36	805.74	680.77	346.85
March	1,847.69	811.62	687.36	348.72
April	1,870.98	825.00	694.29	351.70
May	1,876.60	835.40	686.75	354.45
June	1,890.43	847.50	685.74	357.20
July	1,904.44	861.57	683.87	359.00
August	1,926.91	874.58	692.29	360.04
September	1,953.74	887.64	705.46	360.64
October	1,958.76	895.04	701.93	361.79
November	1,959.93	894.00	703.03	362.90
December	1,963.47	901.43	698.08	363.96
2023
January	1,963.86	905.20	694.39	364.28
February	1,982.31	916.24	701.99	364.08
March	1,993.52	918.21	711.14	364.17
April	2,006.08	924.99	715.97	365.13
May	2,013.99	930.07	718.12	365.80
June	2,011.02	934.64	709.67	366.71
July	2,011.25	935.16	708.45	367.64
Source: Statistics Canada, table 36-10-0640-01.

A sizable portion of Canada’s corporate debt (about 47%) consists of non-mortgage loans, which amounted to more than $935 billion as of July 2023. Almost three-quarters (over $660 billion) of these loans are with chartered banks. The remainder consists of loans from non-banks, such as governments (including Canada Emergency Business Account loans), non-bank financial corporations (such as credit unions), and other resident and non-resident lenders (i.e., syndicated loans involving foreign banks).

While annual growth in non-mortgage loans was relatively slow throughout the 1990s and into the early 2000s (about 3.0%), the pace of borrowing accelerated after 2010. Average growth was 8.6% per year from 2010 to 2020. In 2021, growth was over 10%, and, in 2022, growth accelerated again to 14%.

Debt securities, predominantly corporate bonds, are the second most common form of corporate debt. These accounted for roughly $710 billion in July 2023 (about 35% of total outstanding corporate debt). Debt securities were the fastest-growing form of corporate debt in the 1990s, averaging nearly 13% growth per year. The pace slowed considerably in the 2000s, with annual growth averaging 5.1% from 2000 to 2009. Growth picked up after 2010 but did not match the pace of the 1990s.

The third most common form of corporate debt in Canada (less than 20% of total debt) is mortgage loans. This type of loan includes both non-residential loans and residential loans. Residential loans accounted for slightly more than one-quarter of all mortgage loans, up from roughly 14% in the 1990s, while non-residential loans made up the remainder. This type of debt grew substantially in the early part of the 2000s, with growth averaging nearly 10% per year from 2000 to 2009. Growth eased to nearly 6% after 2010 but was considerably stronger in 2020 (10.1%) and 2021 (9.5%). Moreover, this form of debt is generally concentrated in specific industries, such as real estate and construction.



Conclusion

Canadian corporations maintain high levels of debt on their balance sheets.  High debt burdens with rising interest rates pose risks to the economy, including corporate insolvencies and bankruptcies, which could lead to higher unemployment, financial sector instability and slower economic growth. These risks, in turn, put strains on the banking sector, potentially leading to even higher borrowing rates or reduced access to financing. High debt loads may also result in the proliferation of zombie corporations (Alexander Amundsen et al. 2023) such as businesses that struggle to generate enough income to simply make required debt payments and that act as a potential drain on productivity and capital allocation.

A recent Bank of Canada Senior Loan Officer Survey found that overall business lending has tightened over the last three quarters and is approaching conditions reported in the second quarter of 2020. This, however, remains well off the peak reported in the fourth quarter of 2008 during the Great Recession. The International Monetary Fund reported similar findings in a recent World Economic Outlook, noting that banks in advanced economies have tightened lending standards, curtailed the supply of credit, and that high interest rates will likely lead to even tighter credit conditions. While the ratio of interest expenses to disposable income for Canada’s corporate sector has been declining, it is still elevated compared with the country’s G7 peers. Similarly, corporate debt levels are also high relative to those of other G7 countries. These two important indicators of debt burden warrant close scrutiny as the economic and financial landscape evolves.

Authors

Sean Clarke is with the Strategic Analysis, Publication, and Training, Statistics Canada. Dave Krochmalnek is with the National Economics Accounts Division, Statistics Canada.

References

Amundsen, A., Lafrance-Cooke, A., Leung, D. (2023). Zombie firms in Canada. Economic and Social Reports.

Bank of Canada Senior Loan Officer Survey.

Bank of Canada, Business Outlook Survey – Third Quarter of 2023. Vol. 20.3, October 16, 2023. Business Outlook Survey—Third Quarter of 2023 - Bank of Canada

International monetary Fund, World Economic Outlook Update, July 2023.

Statistics Canada. (2020) Guide to the Monthly Credit Aggregates. Latest Developments in the Canadian Economic Accounts. Catalogue no. 13-605-X. Ottawa: Statistics Canada. Guide to the Monthly Credit Aggregates (statcan.gc.ca)

Statistics Canada. Canadian Survey on Business Conditions, third quarter 2023. The Daily — Canadian Survey on Business Conditions, third quarter 2023 (statcan.gc.ca)