Carney: Euro Woes and Household Debt

In a speech in Toronto today, Mark Carney, governor of the bank of Canada, issued stern warnings about the future health of the our economy. He spoke of the fallout  a recession in Europe would inflict on our economic growth and, as has become his custom, urged Canadians to curb their habit of taking loans to fund “household expenditures.”

Here are the significant quotes from Carney’s speech at the Empire Club of Canada/Canadian Club of Toronto:

1. “The euro area is sinking into recession. Given ties of trade, finance and confidence, the rest of the world is beginning to feel the effects.”

2. “Canadian households have increased their borrowing significantly. Canadians have now collectively run a net financial deficit for more than a decade, in effect, demanding funds from the rest of the economy, rather than providing them, as had been the case since the Leafs last won the Cup.”

3. “Developments since 2008 have reduced our margin of maneuver. In an environment of low interest rates and a well functioning financial system, household debt has risen by another 13 percentage points, relative to income.”

4. “Canadians are now more indebted than the Americans or the British. Our current account has also returned to deficit, meaning that foreign debt has begun to creep back up.”

5. Much of this borrowing has been “going to fund Canadian household expenditures, rather than to build productive capacity in the real economy.”

6. “Today, our demographics have turned, our productivity growth has slowed and the world is undergoing a competitive deleveraging.”

7. “We might appear to prosper for a while by consuming beyond our means. Markets may let us do so for longer than we should. But if we yield to this temptation, eventually we, too, will face painful adjustments.”

-Peter Muggeridge