Canadians are the most indebted in the world, OECD says, as it warns on rising debt risk

The OECD warned that rising private debt loads in both advanced and developing economies pose a risk to growth as Canada, South Korea, and the U.K. lead the world in household borrowing.

“Household and corporate debt in many advanced and emerging market economies is high,” the Organization for Economic Cooperation and Development said Thursday in a pre-released section of a report to be presented next week.

“While higher indebtedness does not necessarily imply that problems are just around the corner, it does increase vulnerability to shocks.”

Indebtedness has continued to rise from high levels in the Scandinavian countries, Australia and Canada, the OECD said.

With the global economy showing its most even expansion since the financial crisis, debt levels and credit quality are among the risks that could trigger a downturn. Consumer debt tops 100 per cent of gross domestic product in Canada, with South Korea and Britain both above 80 per cent.

In some countries, like Australia, Canada, and the United States, debt servicing ratios have started to rise, possibly reflecting expectations of future fiscal tightening, the OECD said.

On corporate borrowing, the OECD warned about a shift in risk from banks to the bond market and a “substantial” decrease in credit quality.

Canada’s consumer debt has also started to rise as households took advantage of low-interest rates over the past seven years.

Another key issue is the housing shortages that’s leading to price spikes on account of “binding restrictions to housing supply, predominantly in large cities,” across many developed countries such as Canada.

“Recent OECD Economic Surveys (on housing supply) have recommended a thorough review of regulations in several countries (Australia, Canada, Chile, Luxembourg and the United Kingdom) while recognizing that some planning constraints are necessary for environmental and social reasons,” the OECD said.

On Wednesday, the Liberal government announced new housing benefits for low-income tenants that could eventually help 300,000 households after 2021 — when the money is to start flowing — and 2028 by providing on average $2,500 in help, that could go to those already in social housing and those on wait lists for a unit.


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