Despite the Bank of Canada’s alarm bell about household debt and rising house prices, the prospect of a recession does not worry Quebec’s Finance Minister, Eric Girard.
“We have a forecast of 2% for 2023,” the minister explained in the corridors of the National Assembly. What the Bank of Canada articulated yesterday is that real estate, and home debt, are weaknesses, and the tightening of monetary functions is exacerbating those weaknesses.”
Mr. Gerrard was referring to comments by Bank of Canada Governor Teff McClem, who said on Thursday that household debt and rising home prices are putting the Canadian financial system in an uncomfortable position.
“But this does not mean that there will be a recession there. The most likely scenario is that there will be moderate growth at 2%,” the finance minister added.
In fact, for a recession scenario to materialize, a series of factors would need to be accompanying it, explained Teff McClem. Household indebtedness and rising home prices should be exacerbated by a net slowdown in the economy and an increase in the unemployment rate.
Loss of income is likely to force debt-burdened households to drastically cut back on spending to continue paying mortgage payments. Moreover, any major correction in house prices would reduce family wealth and access to credit, especially among the most indebted. “If many families find themselves in this situation, there could be widespread repercussions for the economy and the financial system,” McClem said.
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