Equifax Canada released their quarterly consumer credit trends report last week, and it might not be surprising to some that our current debt situation has not changed that much. In fact, at a time when Jim Flaherty and Mark Carney continue to only get louder with their debt warnings, we keep piling it on. The report showed that in the first quarter of 2012, our debt levels grew by 3.4% when compared with our debt levels at this time last year.
The report does not take into consideration home loan debt including HELOCs or second mortgages, but it did find that the number of other new loans of different types increased by 1% when compared with last year. What may have been the biggest increase though, was the amount of outstanding balances that we currently carry on those other types of loans such as car loans and leases, increased by 10% from what those balances were in the first quarter of last year. The news is sure to be very concerning to the Finance Minister and Mark Carney, but should we really be that worried?
Nadim Abdo, vice-president of consulting and analytical services at Equifax Canada isn’t sure. He says, “Interest rates are still obviously very low so people are still borrowing, but I don’t know if it’s a good or a bad news story. It is not surprising to see consumer credit continue to increase given the significantly improved levels of consumer delinquencies and bankruptcies witnessed in the last year, coupled with record-low consumer borrowing rates.”
It’s not surprising to hear the same tune that the high amount of borrowing happening right now is due to low interest rates – low rates that have so far, been expected to remain low until at least 2013. But will they? BoC governor Mark Carney is becoming frustrated with the fact that Canadians across the board seem to think his hands are tied; and that no matter how loud his warnings become, Canadians don’t need to listen as long as he keeps the interest rates as low as they have been.
The question is whether or not he will, as his frustration undoubtedly continues to climb. During the last rate change announcement, it was not surprising that he kept them the same. But what was surprising was that along with the announcement, he also sounded much more upbeat about economic conditions around the world. He admitted that the U.S. had been recovering quicker than was expected, and that the crisis in Europe was also abating. So how will those observations, along with the fact that we continue to take on more debt, affect the near future?
We’ll find out tomorrow once Mark Carney meets with his policy council to determine whether or not the target interest rate will be increased, or remain the same as has been expected.
