Bank of Canada Sees Household Debt And Housing Market As Economic Risks

Bank of Canada Governor Stephen Poloz sees high household debt levels and imbalances in the housing market as the primary risks to the Canadian economy.

In its annual financial system review (FSR) released on Thursday, the central bank identified the main factors that could have negative consequences for the economy. Governor Poloz said at a news conference that progress has been made to address both risk factors.

“New measures have curbed borrowing, reduced speculative behaviour in housing markets and made the financial system more resilient,” he said. “While the fundamentals in the housing sector remain solid overall, and the sector should return to growth later this year, we continue to monitor these vulnerabilities closely.”

During his news conference, Governor Poloz shared his view of the health of Canada’s economy.

“Overall risk to the Canadian financial system has increased slightly since a year ago,” he said. “That's due to a slowdown to overall growth in Canada and abroad, though we do expect economic growth to pick up in Canada later this year.”

As for other risks, the report cites increasing corporate debt as an emerging source of vulnerability for the economy. It said that companies around the world, including some in Canada, have become more indebted.

The review also identified possible risk to the financial system from cyberattacks, saying that the number of cyber incidents that have or could have resulted in significant financial losses increased steadily over the past decade.

And, for the first time, the Bank of Canada highlighted climate change as a potential economic threat.

“We want to better understand the risks that climate change poses to the economy and financial system,” the report states. The Bank of Canada said that it will begin “a multi-year research effort,” as well as collaborate with domestic and international partners to build the bank's capacity to analyze climate risks.