Winnipeg Free Press - PRINT EDITION

Debt grows at slowest rate since pre-recession

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TORONTO -- Consumer debt growth was about 30 per cent lower in the second quarter than a year earlier -- the biggest slowdown since before the recession, according to a new consumer credit study.

Equifax Canada's quarterly consumer credit trends report found that consumer indebtedness, excluding mortgage debt, grew 3.1 per cent year-over-year in the second quarter, down from 4.4 per cent in the same period of 2011.

The study, released Thursday, found high-interest credit-card debt fell by 3.8 per cent in the quarter and consumer bankruptcies were down 4.5 per cent from a year earlier. Bank loans and lines of credit showed very moderate growth compared to a year ago.

And while consumers continued to take on debt, it is encouraging that the rate of acceleration is moderating significantly, said Nadim Abdo, vice-president of consulting and analytical services at Equifax Canada.

"For the last couple of years we have seen almost double-digit growth in some cases. It slowed down a bit last year, but we have never seen it slow down as much as we have (in the second quarter) probably for the past five or six years," he said.

The biggest increase in outstanding balances was for non-bank auto finance loans and leases, which grew by eight per cent from the second quarter of 2011.

Average bank term loans grew by 3.4 per cent, while lines of credit were up by just 0.5 per cent.

The 3.1 per cent rate of debt growth was also an improvement from the first quarter of this year, when non-mortgage debt grew by 3.4 per cent.

Most of the growth appeared to come from people's existing credit rather than new accounts, another sign of improvement, Abdo added.

The agency's credit-seeking index -- which measures the velocity at which consumers are seeking new credit -- suggested consumer demand for new credit is six per cent lower than it was before the 2008 financial crisis.

"We remain to be in a very low-interest-rate environment, so you might expect people to borrow more. Maybe they are listening to the minister of finance and other people who are encouraging them to deleverage," Abdo said.

"We are seeing a significant slowdown --not deleveraging -- in the growth rate of credit this quarter."

With household debt at an all-time high above 150 per cent of income, the Bank of Canada has declared it the number one domestic risk to the economy.

Central bank governor Mark Carney said Wednesday that government stimulus and household consumption backed by low interest rates had sustained the recovery so far, but there are limits to that approach.

"We're seeing the limits on the household debt side which is why various measures are being taken," he said, referring to the most recent move toward tighter mortgage and lending rules.

 

-- The Canadian Press

Republished from the Winnipeg Free Press print edition July 21, 2012 B11

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