Canada. Total Funds raised by Domestic Non-financial Sectors Up

The total funds raised by domestic non-financial sectors amounted to $292 billion in the third quarter, up from $258 billion in the previous quarter.

Federal government borrowing was again significant in the third quarter, accounting for almost 40% of the total.

Higher equity prices and falling mortgage rates and bond yields highlighted financial market development in the third quarter. The Standard and Poor's composite index continued to gain ground again this quarter, up 10%, closing out the quarter at 11,400. This marked the second consecutive quarter of double-digit growth for the index.

The five-year conventional mortgage rate fell more than 35 basis points while average yields on Government of Canada three to five year bonds fell 12 basis points in the third quarter. The Bank of Canada's target overnight rate remained unchanged during the quarter. The Canadian dollar appreciated for the second consecutive quarter relative to its US counterpart, closing the quarter at US 92.4 cents.

Persons and unincorporated businesses

Household borrowing increased during the third quarter, reaching $89.5 billion (seasonally adjusted at annual rates), up from $86.8 billion in the previous quarter. The household sector remained a net borrower in the economy due to its continued investment in non-financial assets exceeding their saving.

Net new mortgage borrowing has increased for two consecutive quarters following three quarters of decline. This increase contributed to the sharp recovery in existing home sales and renovation activity. In addition, consumer credit rose 23% to $41.9 billion during the quarter, reflected in increased auto purchases. The household debt service ratio (7.6%) was virtually unchanged from the second quarter (7.7%). The debt service ratio has fallen over 0.5 percentage points since the first quarter of 2008, as growth in personal disposable income and lower interest rates have helped reduce the ratio.

Government

Borrowing by all levels of government increased to $128 billion in the third quarter, up from $113 billion in the second quarter (expressed at seasonally adjusted annual rates, on a quarterly basis, governments borrowed $32 billion in the third quarter). Federal bond issues were substantial in the quarter, accounting for the bulk of total federal government borrowing activity.

The overall government sector was again a net borrower from the rest of the economy, a pattern that emerged in the latter part of 2008. The increased level of borrowing over this period was due in part to the financing of the federal government stimulus plan, as well as other special government initiatives (such as the insured mortgage purchase program and investment by government in private non-financial corporations).

Corporations

Following three quarters of substantial declines, overall corporate profits and fixed capital investment of non-financial corporations increased in the third quarter. The corporate sector continues to supply funds to the rest of the economy, though net lending was lower as saving declined.

The third quarter was marked by a significant return by non-financial corporations to equity financing. Their net new issuances increased by $41.5 billion (to $72.5 billion), accounting for the majority of this sector's overall funds raised in the third quarter. This represented a notable shift since the fourth quarter of 2008, when non-financial corporations borrowed heavily from financial institutions by way of loans. Non-financial corporations' net new loans have declined for the first three quarters of 2009, while short-term paper issuances have declined for five straight quarters.

Among lenders, mortgage and consumer credit activity to the household sector was up in the third quarter, while loans to other sectors slowed. Institutional investors and financial institutions increased their investments in domestic fixed income securities over the quarter.

Non-residents

The non-resident sector continued to be a net lender to the economy in the third quarter, a pattern that emerged in the fourth quarter of 2008. Foreign investment in Canadian securities remained high in the third quarter, led by non-resident purchases of Canadian equities. Canadian investors reduced their holdings of foreign securities, largely debt instruments, during the same period. The economy posted its fourth consecutive quarterly current account deficit, with the deficit increasing from the previous quarter.

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