‘The worm is turning’: More Canadians are going broke, defaulting on their debts

Bank of Canada paints bleak picture

Loonie slumps as central bank holds steady

Canada’s trade gap swells to record

U.S. trade deficit at 10-year high

China says it blocked canola over ‘pests’

Two recent reports shed a troubling light on how Canadians are coping with their debts.

Consumer insolvencies and delinquencies are rising modestly. But rising they are, and observers predict more Canadians will go under.

“As we expected, the worm is turning in the Canadian credit market,” Bill Johnston, vice-president of data and analytics at Equifax Canada, said as he released the group’s look at delinquencies in the fourth quarter.

“Rising delinquency is likely to become the norm in 2019,” he added.

Notable, too, is the number of seniors in trouble.

This comes after a rise in interest rates, though the Bank of Canada has stopped for now, and is expected to hold steady again today amid economic uncertainty.

The first report, from the Office of the Superintendent of Bankruptcy Canada, showed insolvencies among consumers rose 7.2 per cent in January from a year earlier.

Important here is that there are two types of insolvencies, bankruptcies and proposals, the latter being a renegotiation of one’s debts.

When looked at that way, proposals climbed 11.5 per cent in January from a year earlier, with outright bankruptcies rising by just 1.3 per cent.

“Those living paycheck to paycheck are struggling to meet their debt repayment obligations,” said Chantal Gingras, chair of the Canadian Association of Insolvency and Restructuring Professionals.

“Many Canadians may be technically insolvent in terms of being unable to pay their bills, but they haven’t sought debt relief yet. That said, the number of consumer insolvencies are likely to continue to increase over the next two years as more individuals seek help.”

As for failing to pay debts, Equifax’s latest report showed delinquencies began a “modest turn higher” in the final quarter of last year.

Where mortgages are concerned, the 90-day delinquency rate rose 1.5 per cent to a still-small 0.18 per cent. For non-mortgage loans, the rate inched up 0.4 per cent to 1.07 per cent.

This differs across the country, of course.

Debt (excluding mortgages) and delinquency rates, by city City Average debt, Q4 2018 Average debt change* Delinquency rate, Q4 2018 Delinquency rate change* Calgary $30,099 2.10% 1.21% 3.10% Edmonton $28,863 6.00% 1.41% -3.30% Halifax $23,680 -0.80% 1.54% 7.90% Montreal $17,733 1.70% 1.21% -0.10% Ottawa $22,567 2.40% 0.90% -3.90% Toronto $22,935 4.50% 1.12% 0.10% Vancouver $26,518 2.90% 0.70% 3.50% St. John's $25,538 0% 1.65% 15.10% Fort McMurray $39,914 4.10% 1.76% 0.40% *Year-over-year percentage change, Q4 2017 vs. Q4 2018

Equifax also warned that Canada’s seniors are facing worrisome times, with their delinquency rate up 7.2 per cent in the last three months, and “the increases are gaining momentum.”

The Bank of Canada painted a bleaker economic picture as it held interest rates steady today, suggesting rates aren’t going anywhere any time soon.

“After growing at a pace of 1.8 per cent in 2018, it now appears that the economy will be weaker in the first half of 2019 than the bank projected in January,” governor Stephen Poloz, deputy governor Carolyn Wilkins and their colleagues said as they held their benchmark overnight rate at 1.75 per cent.

Open this photo in gallery Bank of Canada senior deputy governor Carolyn Wilkins and governor Stephen Poloz Chris Wattie/Reuters

Slowing growth in the fourth quarter – just 0.4 per cent at an annual pace – was “sharper and more broadly based” than projected.

As a result, the central bank “judges that the outlook continues to warrant a policy interest rate that is below its neutral range,” it said.

“Given the mixed picture that the data present it will take time to gauge the persistence of below-potential growth and the implications for the inflation outlook,” it added.

“With increased uncertainty about the timing of future rate increases, governing council will be watching closely developments in household spending, oil markets and global trade policy.”

The Canadian dollar, which tumbled Friday on the latest GDP report, sank further after the central bank announcement.

“The Bank of Canada has seen too much of a not good thing as Canada's growth slowed to a crawl, and that's hardly the time to raise rates or even talk much about doing so,” said CIBC World Markets chief economist Avery Shenfeld.

“Today’s no-change announcement was therefore no surprise, and the only issue was how far the central bank would back away from its warnings about a move to a higher (neutral) rate ahead,” he said, adding that “in the end, the bank is still saying that current rates are below neutral, and refers to increased uncertainty about the timing of future rate increases (with no reference to any possibility of cuts) leaving a slightly hawkish tilt in place.”

Canada’s trade deficit now stands at a record $4.6-billion.

Having said that, a drop in exports of 3.8 per cent in December was largely because of declining energy products, which tumbled by 21.7 per cent, Statistics Canada said today.

If you strip out energy, exports were flat in December, the federal agency said. At the same time, export prices fell 2.4 per cent, with volumes down 1.4 per cent.

Imports, in turn, rose 1.6 per cent, largely on stronger volumes, fattening up the overall trade surplus from $2-billion in November.

“While exports were absolutely pounded by a sharp drop in oil prices at the end of last year (down 20 per cent, month over month, by one measure) - which has since reversed - the bigger picture is far from friendly for trade at this point,” said Bank of Montreal chief economist Douglas Porter.

“At best, we look for trade to move sideways this year, with the deficit holding roughly steady and net exports about neutral. A persistent trade gap and weak productivity - not exactly a winning combination for the Canadian dollar, or a ringing endorsement for further rate hikes.”