Rising global debt holding back growth, opening up vulnerabilities: central bank

U.S.-China trade war, expanding global geopolitical unrest have been key worries for the Bank of Canada

The Bank of Canada’s senior deputy governor says an explosion of global debt over the last decade is a top concern that she argues is holding back economic growth and creating vulnerabilities in the world’s financial system.

The global financial system is in better shape than it was in 2007 before the financial crisis, but unknowns such as ongoing U.S.-China trade tensions could knock things off course, Carolyn Wilkins said in a speech Thursday in Vancouver.

Wilkins also warned that high debt loads usually become an “amplifying factor” when it comes to an economic downturn.

The U.S.-China trade war and expanding global geopolitical unrest have been key worries for the Bank of Canada, she noted.

“The global development that concerns me the most, though, is rising debt,” Wilkins said in her speech at an event hosted by the University of British Columbia’s economics department and CFA Society Vancouver.

“Whether you’re a homeowner or a business person, you know first hand that high leverage can leave you in a vulnerable financial position. It’s no different for economies.

“The world has learned this lesson the hard way on many occasions in my lifetime.”

READ MORE: Central bank holds rate, notes ‘increased uncertainty’ on timing of future hikes

She said the combined global debt owed by governments, businesses and households now amounts to US$240 trillion, which is US$100 trillion higher than just before the financial crisis and more than three times the world’s gross domestic product.

Government debt, she added, has “skyrocketed” over the past 10 years, while corporate borrowing has “exploded” and now displays some risky qualities.

But some debt can be a good thing, she said.

For instance, Wilkins said limited accumulation of public-sector debt can help stimulate economic growth, depending on how it’s used, and companies can borrow as a way to invest in expanding their capacity.

Debt levels around the world piled higher largely because of the long stretch of extremely low borrowing rates that was necessary to help global growth build fresh momentum, she said.

“The downturn would have been even deeper and more painful without these decisive policy responses,” Wilkins said.

“What strikes me, though, is how much overall leverage has grown globally, even as the financial sector has repaired its books.”

Canada’s high household debt, which is now more than 178 per cent of disposable income, is the central bank’s top domestic financial vulnerability, she said.

“The good news for Canadian businesses and households is that the financial system — globally and here at home — is safer than it was a decade ago thanks to much stronger safeguards,” she said.

Wilkins added it’s important for policy-makers around the world to continue efforts to conduct stress tests on different parts of the financial system, and, when necessary, put in safeguards.

Andy Blatchford, The Canadian Press

Like us on Facebook and follow us on Twitter.

Just Posted

Giesbrecht found guilty of second-degree murder

Judge says murder is the only rational conclusion on the whole of the evidence

Woman struck by vehicle at Hwy 16 and Main

RCMP say they don’t yet have a status update on the individual’s condition

Fire ban back in effect for Northwest Fire Centre region

Starting May 24, both Category 2 and Category 3 prohibitions will be in place

Convicted animal abuser Catherine Adams to return to B.C. court in July

Catherine Adams is under a 20-year ban on owning animals, from a 2015 sentence in Smithers

Share the road goes both ways

Bad cycling is a hazard to both cyclists and drivers

B.C.’s fight to regulate bitumen through pipelines to go to Canada’s top court

BC Appeal Court judges found B.C. cannot restrict bitumen flow along Trans Mountain pipeline

Scheer says it would take Conservatives five years to balance budget

Scheeraccused the Liberal government of spending $79.5 billion of previously unbudgeted funds

B.C. man, 30, arrested for driving his parents’ cars while impaired twice in one day

The Vancouver-area man was arrested after officers caught him driving impaired twice in one day

New airline regulations bring compensation for tarmac delays, over-bookings

Some of the new regulations will roll out in July, while others are expected for December.

More than half of Canadians support ban on handguns, assault rifles: study

Divide between rural and urban respondents in latest Angus Reid Institute public opinion study

Spring rain needed as B.C. sees one of the lowest snowpack levels in 40 years

Snowpack levels in B.C. recorded on May 15 were similar to those in 2015 and 2016

Theresa May to quit as party leader June 7, sparking race for new PM

The new Conservative leader will become prime minister without the need for a general election

B.C. man who fell off cliff returns there to rescue eagle from vulture attack

Nanaimo’s James Farkas, who broke his hip in a fall, saves eagle on same beach months later

Raptors beat Bucks 105-99 to move within 1 game of NBA Finals

Leonard scores 35 as Toronto takes 3-2 series lead over Milwaukee

Most Read