Bank of Canada sees rising global debt as top threat to growth
(Adds more comments from Wilkins)
By Julie Gordon
OTTAWA, March 14 (Reuters) - Rising global debt is slowing
economic growth and making Canada, and the rest of the world,
more vulnerable to another period of financial instability, Bank
of Canada senior deputy governor Carolyn Wilkins said on
Speaking to an audience of financial professionals and
students in Vancouver, she noted that while the global financial
system is in a better place than it was a decade ago, trade
uncertainties and other geopolitical risks could throw things
"Global debt now totals around $240 trillion - that's $100
trillion higher than just before the financial crisis," Wilkins
said, adding: "That is a headwind to growth and makes us
vulnerable to another period of financial instability."
On the domestic front, Wilkins said that high household debt
levels are "our No. 1 domestic financial vulnerability," but
later added that more stringent mortgage rules introduced last
year had improved the quality of new borrowing.
Canadian household debt-to-income widened to a record 174
percent in the fourth quarter of 2018, Statistics Canada said
earlier on Thursday.
The Bank of Canada - which has hiked rates five times since
July 2017 - stayed on the sidelines in its rate decision last
week, warning there was "increased uncertainty" on the timing of
future hikes and removing wording around the need for rates to
rise to the neutral range over time.
Wilkins did not mention the need for further rate hikes in
her speech but when asked later about the neutral range said
that changes in interest rates will now "have a stronger effect
than they had in past because people are so indebted."
She also spoke about rising non-financial corporate debt as
investment funds have filled a gap left by retreating banks,
noting that while banks face stringent stress tests it is less
clear how funds would react to an adverse shock.
"I wouldn't want to leave the impression that I think that
shadow banking is something you want to stamp out. It's just
something you want to put guardrails around," she said.
On the trade front, Wilkins said a long-lasting resolution
to the current U.S.-China trade war was needed, as the conflict
was threatening growth around the world.
"In a trade war, no one gains and everyone loses," she said.
U.S. Treasury Secretary Steven Mnuchin said Thursday that a
summit to seal a deal would not happen at the end of March as
discussed as more work is needed.
(Additional reporting by Dale Smith in Ottawa; Editing by
Cynthia Osterman and Lisa Shumaker)
First Published: 2019-03-15 01:05:54
Updated 2019-03-15 02:45:09
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