OTTAWA (Reuters) - The ratio of Canadian household debt to income posted a record drop in the second quarter as expenditures fell and government aid programs helped bolster incomes, Statistics Canada said on Friday.
The ratio - which the Bank of Canada says is a key indicator of the stresses facing Canadians - dropped to 166.8% from a revised 171.7 percent in the first quarter.
Analysts though said the recovery could be temporary, citing the continuing damage from the coronavirus epidemic and the fact record low interest rates mean borrowing money is cheap.
The Liberal government has provided more than C$200 billion ($152 billion) in direct COVID-19 support and nearly 14% of gross domestic product in total aid.
“Government transfers and reduced spending pushed household savings to an unprecedented level,” Statscan said. “This enabled households to shore up their deposit accounts while simultaneously reducing their debt.”
RBC Economics senior economist Josh Nye said low rates and higher household savings might help households whose incomes had not been disrupted to press ahead with debt reduction.
“We remain concerned that some households will still struggle to keep up with their debt payments over the next year amid a slow economic recovery and challenging labor market conditions, even with government support being extended,” he said in a note to clients.
Government aid pushed household disposable income up by 10.8% while spending dropped by 13.7%.
Household sector net worth - the value of all assets less liabilities - increased by a record 5.0% after a record decline in the first quarter.
Priscilla Thiagamoorthy, an economist at BMO Capital Market Economics, said the combination of low rates and hot regional housing markets could spur higher borrowing.
“That suggests the pullback in the debt ratio could prove to be temporary,” she said in a note.
($1=1.3179 Canadian dollars)
Additional reporting by Julie Gordon and Dale Smith in Ottawa; Editing by Steve Orlofsky
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