National balance sheet accounts

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National balance sheet accounts note to readers

Third quarter 2007

National net worth reached $5.4 trillion by the end of the third quarter of 2007, or $163,700 per capita. National net worth expanded by a modest $63 billion in the quarter. This represented an increase of 1.2% over the second quarter, the weakest growth in eight quarters.

Chart H.1 National net worth slows down

With economic growth slowing in the third quarter, growth in national wealth (economy-wide non-financial assets) decelerated to 1.9%, down from 2.4% in the previous quarter. Residential real estate continued to be the major driving force in the growth of national wealth, accounting for over half of the gain.

The strong saving position of the government and the corporate sectors, coupled with continuing gains in the real estate market and a resilient stock market, contributed to the sustained growth of national net worth in the third quarter. However, this growth in national net worth was dampened by an increase in Canada's net foreign indebtedness, largely resulting from revaluation, as the Canadian dollar appreciated against most major foreign currencies. The appreciation of the Canadian dollar reduced the Canadian dollar value of holdings of international assets to a much larger extent that it reduced Canadian foreign currency denominated liabilities. Foreign direct investment in Canada increased despite the continued appreciation of the Canadian dollar, contributing to the increase in Canadian liabilities to non-residents.

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

Household net worth grows at slower pace

Growth in household net worth slowed significantly during the third quarter, increasing 1.2%, about half the pace of the previous quarter and the slowest in five quarters. The advances in both financial and non-financial assets were largely offset by the substantial increase in liabilities. Increases in mortgage loans and consumer credit were the main contributors to the rise of total household liabilities.

Financial assets managed to post slight growth with modest increases in deposits, pension funds and equities combining to offset the dampening effect of the appreciating Canadian dollar on foreign investments. Residential real estate remained the major driving force of the growth of the households' non-financial assets.

Household debt, in the form of consumer credit and mortgages, continued to outpace increases in net worth. Consequently, the debt-to-net worth ratio increased to 17.9% while the overall household debt amounted to 115.7% of personal disposable income.

Chart H.3 Household leverage rises

Chart H.4 Household debt-to-income ratio continues to rise

Non-financial corporate leverage falls further

The private non-financial corporate sector remained in a surplus position while increasing fixed investment in the third quarter. The demand for funds in the quarter declined, resulting in a further decrease in leverage. The debt-to-equity ratio declined for the second consecutive quarter, as strong growth in retained earnings combined with net new share issues outpaced slight increases in debt levels.

Chart H.5 Corporate leverage continues downward trend

Government net debt-to-gross domestic product ratio continues to decline

Total government net debt maintained its downward trend for a 14^th consecutive quarter, propelled by a further surplus and reflected in the sustained reduction of Government of Canada short-term paper obligations and net retirement of Government of Canada bonds. Consequently, the net debt-to-GDP ratio continued its decline, with net debt in the third quarter less than half of GDP, compared with almost 90% a decade ago.

Financial institutions continue to increase financial assets

Financial institutions, traditional net lenders to the other sectors of the economy, continued to significantly increase their financial assets, mainly on the strength of increases in bank loans, consumer credit and mortgage holdings. The currency effect of the appreciating Canadian dollar continued to be felt through the downward revaluation of foreign currency-denominated investment portfolios of the institutional investors' sectors.

Statistical tables

• Table H.1 National balance sheet accounts
• Table H.2 National balance sheet, market value
• Table H.3 Credit market summary table

Information on methods and data quality available in the Integrated Meta Data Base: 1806.