Canada. Decline in Total Borrowing by Non-Financial Sectors

Total borrowing by Canada's non-financial sectors (households, private corporations, governments and government business enterprises) fell to $312 billion in the first quarter of 2009, down from $412 billion in the previous quarter.

In financial markets during the first quarter there was a depreciation of the Canadian dollar and a further decline in the Standard & Poor's / Toronto Stock Exchange composite index, which closed down 3% after a record drop of 24% in the fourth quarter of 2008.

In addition, commodity prices fell for the third consecutive quarter. Short-term interest rates decreased, as the Bank of Canada reduced the bank rate to 0.50%. Mortgage rates also decreased slightly in the quarter.

Households

Household demand for funds was $65 billion, a substantial drop from the previous quarter ($91 billion). Lower personal expenditures on goods and services, particularly purchases of motor vehicles and household furnishings, contributed to reduced household borrowing in the form of consumer credit and bank loans.

Despite the decrease in the five-year mortgage rate, net new mortgage borrowing also contracted during the first three months of 2009, as investment in residential construction and activity in the resale housing market continued to decline.

Personal saving remained high in the first quarter of 2009. Canadians invested more in deposit-type investments such as guaranteed investment certificates. Lower interest rates contributed to the decline in households' debt service ratio, which fell from 8.0% of personal disposable income in the fourth quarter to 7.9% in the first quarter.

Government

Borrowing by the federal government slowed in the first quarter of 2009 but remained at high levels. This borrowing was partly in support of the federal government's economic stimulus plan and the Insured Mortgage Purchase Program. The program is intended to provide long-term stable funding to lenders and help them continue lending to Canadian consumers and businesses. Federal government revenue (-5.6%) also fell in the first quarter of 2009, mostly as a result of reduced income from taxes on corporations, government business enterprises and persons.

Borrowing by other levels of government slowed for a second quarter but remained high relative to recent years. For the second consecutive quarter, the overall government sector remained a net borrower from the rest of the economy.

Non-financial private corporations

Falling commodity prices and a slowdown in manufacturing and wholesale trade drove down corporate profits for the second consecutive quarter. The non-financial corporate sector recorded a small surplus in the first quarter of 2009, following a deficit in the previous quarter. Borrowing by this sector slowed, from $58 billion in the previous quarter to $25 billion in the first quarter.

Financial institutions

Lending institutions and institutional investors continued to invest heavily in domestic fixed income securities. For the second consecutive quarter, the federal government made funds available to lenders through the Insured Mortgage Purchase Program. Overall mortgage securitization slowed in the quarter following record securitization of mortgages in the previous quarter.

Overall, corporate and government business enterprise net lending remained positive with the sector supplying funds to the rest of the economy.

Non-residents

The more pronounced drop in exports relative to imports in the fourth quarter of 2008 and first quarter of 2009 has driven up non-resident saving and reversed the sector from net borrowers to net lenders. This saving was used in part to purchase Canadian short-term paper, bonds and deposits at Canadian financial institutions and was a major source of funds used to meet the demands by Canadian governments, non-financial corporations and households.

Source:Statistics Canada, June 2, 2009

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