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____ Tuesday December 15, 2015 ____


Canada's Natural Wealth

National balance sheet and financial flow accounts, third quarter 2015

National wealth declines as the value of natural resource wealth falls

Ottawa - National wealth, or the total value of non-financial assets in the Canadian economy, declined $190.4 billion to $9,205 billion at the end of the third quarter. This was mainly attributable to a $285.4 billion decrease in the value of natural resource wealth as energy prices fell in the quarter. The value of residential real estate rose by $48.7 billion.

Offsetting some of the decline in national wealth, Canada's net international asset position increased $61.0 billion in the third quarter to $287.9 billion. The advance in the net foreign asset position in the quarter was led by the depreciation of the Canadian dollar, which increased the value of international assets and decreased the value of international liabilities. Most of the assets are denominated in foreign currencies compared with about half of the liabilities.

National net worth declined 1.3% or $129.4 billion from the second quarter to $9,493 billion at the end of the third quarter. By comparison, national net worth excluding natural resources increased 1.7% from the second quarter as the value of real estate and Canada's net international investment position advanced. On a per capita basis, national net worth decreased 1.7% to $263,800.

The value of household real estate grows, while the value of financial assets is unchanged

Household sector net worth at market value rose 0.4% in the third quarter. On a per capita basis, household net worth was $259,700, largely unchanged from the previous quarter. Non-financial assets, primarily real estate and consumer durables, rose 1.1% while net financial assets declined 0.6% as the value of financial liabilities increased more than financial assets. The ratio of financial assets to non-financial assets declined to 111.4% in the third quarter from 112.7%.

The value of financial assets was unchanged in the third quarter following a 0.6% decline in the second quarter. Growth in both quarters was well off the 4.5% increase in the first quarter. The value of equities declined in the third quarter, notably listed shares (-8.2%), as domestic stock markets continued to weaken. After weak growth in the first quarter, the stock of financial liabilities increased at a faster pace in the last two quarters, mainly as a result of rising mortgage liabilities.

The ratio of total household debt to total assets edged up in the third quarter to 17.0%. Since 2009, this ratio has been on a general downward trend, as the growth in the value of assets has outpaced debt. This ratio now sits between the peak of 19.3% recorded in the first quarter of 2009 and the low of 13.8% in the second quarter of 1997.

Total household credit market debt (consumer credit, and mortgage and non-mortgage loans) reached $1,892 billion at the end of the third quarter, up 1.4% from the previous quarter. Consumer credit debt was $572.3 billion, while mortgage debt stood at $1,234 billion.

Leverage, as measured by household credit market debt to disposable income (excluding pension entitlements), rose to 163.7% in the third quarter from 162.7% in the second quarter. In other words, there was $1.64 in credit market debt for every dollar of disposable income. Disposable income increased at a slower pace (+0.8%) than household credit market debt (+1.4%).

The household debt service ratio, measured as total obligated payments of principal and interest as a proportion of disposable income adjusted to include interest paid, decreased to 13.6% in the third quarter. The interest-only debt service ratio, defined as household mortgage and non-mortgage interest paid as a proportion of disposable income, reached a record low 6.1%.

On a seasonally adjusted basis, households borrowed $19.4 billion in the third quarter, down $3.3 billion from the second quarter. Mortgages represented the largest portion of total borrowing in the quarter ($15.6 billion), down $0.9 billion from the previous quarter, while consumer credit accounted for $3.7 billion of borrowing.

Governments continue to borrow, with bonds and debentures the preferred instrument

The federal government borrowed $17.8 billion in financial markets in the quarter; this included net issuances of Canadian short-term paper ($8.7 billion) and bonds and debentures ($9.6 billion). This exceeded the increase in their assets and, as a result, the federal government returned to being a net borrower in the third quarter ($2.2 billion).

Other levels of government continued to be net borrowers ($9.8 billion), recording $4.0 billion in net retirements of Canadian short-term paper, which was outweighed by $15.3 billion in net issuances of Canadian bonds and debentures.

The ratio of federal government net debt (expressed at book value) to gross domestic product edged up to 30.8% in the third quarter from 30.7% in the previous quarter, but has been on a general downward trend. The ratio for other levels of government reached 28.1% in the third quarter, continuing a nearly unbroken upward trend that began in late 2008.

Decline in equities drags down the value of financial corporations' financial assets

The financial sector provided $53.8 billion of funds to the economy in the third quarter, down from the previous quarter. This was mainly in the form of mortgages (+$29.7 billion) and listed shares (+$13.5 billion).

The value of financial assets of financial corporations declined $123.8 billion at the end of the third quarter to $11,843 billion, as increased loan assets and debt securities were more than offset by a large decline in the value of equities and investment fund shares (-5.3%). Similarly, the value of financial liabilities decreased $88.2 billion.

After posting strong first quarter growth (+8.0%), total financial assets of mutual funds grew more slowly in the second quarter and decreased 1.8% in the third quarter. A decline in the value of equities and investment fund shares held by mutual funds was the primary contributor.

Total assets of non-financial corporations contract as the value of their natural resource wealth declines

Non-financial private corporations raised $25.9 billion worth of funds in financial markets during the third quarter. A number of instruments made up the bulk of this borrowing including non-mortgage loans ($9.8 billion), Canadian bonds and debentures ($9.2 billion), and mortgage loans ($9.2 billion). In addition, there was $5.1 billion in net retirements of Canadian short-term paper. Over the last four quarters, borrowing in non-mortgage loans was $68.8 billion.

The value of non-financial assets of non-financial private corporations decreased 4.8% in the third quarter, primarily in natural resource wealth, while financial assets declined 1.4%. As a percentage of non-financial private corporations' total assets, natural resource wealth accounted for 3.6% at the end of the quarter, the lowest share since the fourth quarter of 1991, as lower oil prices persisted.

On a book value basis, the credit market debt-to-equity ratio of non-financial private corporations was up from the previous quarter. There was 67 cents of credit market debt for every dollar of equity at quarter end.

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