Op-Eds

Over the past 25 years, Canadians’ household debt has increased steadily as a share of their disposable income. During this time, and especially since the financial crisis, they have often been told their debt levels were unsustainable and that a day of reckoning was fast approaching. And yet that day has not come. One reason why seems clear: for the most part over the past 25 years, the amount Canadians spend servicing their debt has not changed as a percentage of their disposable income. In a recent C.D. Howe Commentary, we argue that it is primarily this “debt service ratio” (interest payments plus reimbursement of principal divided by disposable income) that determines households’ ability to make their payments at the end...
In Canada the financial services sector weathered the 2007-08 global “credit crunch” better than it did in many other developed countries. One argument for why, certainly in contrast to the U.S., was the smaller size of our “non-bank financial intermediation” (NBFI) sector, more commonly referred to as “shadow banking.” But rapid growth in the shadow sector since the crisis suggests this resilience might be under threat. What does that mean for monetary policy, financial stability and regulation? As it turns out, a lot. Broadly speaking, the shadow sector includes investment funds, private lenders like mortgage finance companies, companies that offer private-label securitization like asset-backed securities, and more. Shadow banks are...
The Bank of Canada announced last Wednesday that it’s continuing to hold its overnight target rate constant at 1.75 per cent. No surprise there. What is interesting, however, is a major turn of events in the economic outlook. The global economy appears to have gone from being a drag on Canadian growth to a strength, whereas the domestic Canadian economy, once a growth driver, appears to be slowing down. The Bank of Canada still faces a balancing act – although it at least has the tools to fight domestic weakness. The target rate in Canada has remained constant since December, 2018. Elsewhere, several major central banks lowered their policy rates in response to earlier signs of weakness in the world economy and major uncertainties...
Global growth is being deeply affected by the trade turmoil fomented by U.S. President Donald Trump and uncertainty is at the forefront, with slower growth in many places and plenty of policy risk. Here are five key issues to watch in 2020. Expect little overall improvement in global economic prospects. It would be unrealistic to expect a material improvement in economic performance. Both the International Monetary Fund and Organization for Economic Co-operation and Development project the global economy will not strengthen by much; growth in 2020 will remain below 3.5 per cent, after 3 per cent projected for 2019. That would be the weakest period of global growth since the 2008-09 financial crisis and recession. Policy risk...
The Bank of Canada announced on Wednesday that it was holding its overnight rate target constant at 1.75 per cent. Many analysts had been predicting a lowering of the rate since at least Oct. 30, when the bank also held the rate steady and the U.S. Federal Funds Rate dropped a quarter percentage point. A recent Reuters poll reports that a majority of forecasters now expect the Canadian central bank to hold its rate constant right through the end of 2020. That will, of course, depend on the course of inflation. In 2018, the bank was engaged in a tightening cycle and seemed to be on a course toward its long-run “neutral” rate in the range of 2.25 per cent to 3.25 per cent (compatible with an economy at full capacity and...