TORONTO - Canadian consumers are starting to feel the sting of a slowing global economy as they go deeper into debt and see their wealth erode, according to a report released Monday by CIBC World Markets.
"With the recent correction in the stock market and a slowing housing market, Canadians are seeing their net wealth position shrinking," writes Benjamin Tal, CIBC senior economist and author of the report.
"Debt is now rising faster than assets."
The report found that Canadians' debt-to-income ratio - a measure of household debt compared with income - has increased from 122 per cent to 130 per cent in the last year. In the first quarter, the debt-to-asset ratio rose to just under 18 per cent - the highest level since early 2003.
At the same time, net worth as a share of disposable income fell by more than three per cent during the six months ended in March.
The report also found that consumer bankruptcies rose by 3.8 per cent during the year ended June 2008, with Quebec and Ontario leading the pack. CIBC predicts that bankruptcies will continue to rise across the country.
The report says all of these indicators, along with the sharp drop in employment seen in July, are "a clear indication that the Canadian economy is softening quickly."
"This environment poses a major challenge to markets and policy makers in North America," it says.
CIBC also found that mortgage and non-mortgage consumer credit are softening on a "levelling off" in the housing market.
"The household credit market is starting to reflect developments in the real economy," writes Tal.
"While on a year-over-year basis the growth numbers are still impressive, the monthly figures clearly suggest that we are at the early stages of a softening trend in the pace of growth in overall household credit in Canada."
The report says the Canadian mortgage market is still up by an "impressive" 13.4 per cent compared with last year, but adds that "this pace of growth is unsustainable."
It predicts that housing prices in Western Canada will continue to fall during the next six months as the market corrects "the overshooting seen in the past year or so."
When combined with the economic slowdown and the recent decision by the Harper government to limit growth in extended amortization mortgages, CIBC predicts that the mortgage market will slow to between five and six per cent growth in the coming year.
Although there are some similarities between the report's predictions and the mortgage crisis in the U.S., Canadian consumers shouldn't worry that they're going to find themselves in the same dire straits as their southern neighbours, said Bruce Cran, president of the Consumers' Association of Canada.
"I don't think we'll be going off the cliff. There may be a certain amount of reality to be faced in some areas because of the larger inventory and the slackening demand, but I don't believe that we're going to see anything like the United States has seen in recent times," said Cran.
"We're seeing that mortgage lenders are putting a brighter face on things than they were two months ago," he added.
