OTTAWA — The federal budget watchdog says in the coming years increasingly indebted households are poised to become the most financially vulnerable Canadians in decades.
The parliamentary budget office says indebtedness continues to edge higher in Canada — which has seen the largest increase in household debt relative to income of any G7 country since 2000.
The office released a report predicting the ratio of debt payments — including principal and interest payments — relative to disposable income will creep upwards over the next five years as interest rates rise.
The report projects that by the end of 2020, this ratio will increase to 15.9 per cent of disposable income from its late 2015 level of 14.1 per cent.
The office says this increase would mean households would be even more vulnerable to negative shocks to their income or to interest rates — which could also have a negative effect on financial institutions.
The budget office says the ratio's highest level over the past 25 years was 14.9 per cent — a mark reached in late 2007.
The Bank of Canada has pointed to the potential hazards linked to high household debt — particularly if the country were hit by a severe recession or a prolonged period of increasing unemployment.
But the central bank has argued that the likelihood of household debt levels becoming a serious problem remains low and the situation is likely to improve once the economy starts to recover.
The bank has said there's been little evidence of significant increases in delinquency rates.
The Canadian Press