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Bank of Canada sees rising global debt as top threat to growth

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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 Thursday.

[OTTAWA] 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 Thursday.

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 off track.

"Global debt now totals around US$240 trillion - that's US$100 trillion higher than just before the financial crisis," Ms Wilkins said, adding: "That is a headwind to growth and makes us vulnerable to another period of financial instability".

On the domestic front, Ms Wilkins said that high household debt levels are "our number one domestic financial vulnerability," but later added that more stringent mortgage rules introduced last year had improved the quality of new borrowing.

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Canadian household debt-to-income widened to a record 174 per cent 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.

The more dovish tone prompted money markets to price in the chance of a rate cut by year-end, with that probability hovering around 35 per cent ahead of Ms Wilkins speech. Ms Wilkins did not mention the need for further rate hikes on Thursday.

Ms Wilkins said that a long-lasting resolution to the current US-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, adding an end to US tariffs on steel and aluminum would also be a welcome relief for Canada and other impacted countries.

US officials said last week that there had been progress in talks with China, but there was much work left to be done to reach a deal in the tit-for-tat tariff battle, which has weighed on global markets for months.

REUTERS