Monday, June 17, 2013

A Canadian Comparison

Paul Krugman has an interesting post with some comparisons between the USA and Canadian household debt and property markets in the context of the GFC: Worthwhile Canadian Comparison.  Canadian house prices have been quite robust in recent years compared to the USA.

Real house prices, 1975:1 = 100. 

Canadian household debt has also continued to rise coincident with housing prices.



Krugman thinks perhaps"Canada offers a useful test case for theories about what lies behind the Great Recession and the Not-So-Great Recovery" and has some concerns:
So if the new, non-bank-centered view is right, Canada ought to be quite vulnerable to a big deleveraging shock despite its boring banks. Of course, people have been saying this for several years, and it hasn’t happened yet — but remember, the US housing bubble took a long time to pop, too.
While there are some obvious differences, particularly the proximity and border with the USA, Canada is often used as a comparison with Australia as a developed country with a large resource sector. This is a similar graph of household debt from the RBA chart pack.

Household Finances graph

So Australian household debt has been almost flat since the GFC relative to household disposable income, sort of half-way between the USA and Canada trends, albeit at levels currently comparable to the USA, UK and Canada. A look at the trend for Canadian deficits & surpluses in recent decades has similarities with Australia also.

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