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(Olga Utlyakova)
(Olga Utlyakova)

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Why the Bank of Canada is worried by our rising debts Add to ...

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Canada's net worth rises Canadians are getting richer as stocks and house prices rise. Household net worth rose 1.3 per cent in the first quarter of the year, or $74-billion, to $6-trillion, Statistics Canada said today, as the value of assets eclipsed the rise in liabilities. "This follows a 1.8 per cent advance in the previous quarter," the federal statistics gathering agency said. "Gains in the value of financial assets, especially equities, as well as increases in residential real estate contributed to the advance in net worth."

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Household debt also rose, particularly mortgages, Statistics Canada said. The ratio of household credit market debt-to-income now stands at 147 per cent, up from 144.9 per cent in the fourth quarter of 2009.

Separately today, the Bank of Canada cited as "an important source of risk" the proportion of households deemed vulenrable to wealth and income shocks, a level it said in a semi-annual review has increased in recent years. "In the event of a significant economic downturn, the credit quality of household loan portfolios could be undermined, prompting banks to tighten credit conditions and some households to reduce spending," the central bank said. "Ultimately, this could result in mutually reinforcing declines in real economic activity and in the health of the financial sector."

Read: Debt is central bank's biggest fear

Flaherty sees stronger growth Finance Minister Jim Flaherty today released a new survey of private economists that projects stronger-than-expected near-term growth and a gradual decline in unemployment. The survey of 14 forecasters now projects real gross domestic product will expand 3.5 per cent this year, up from 3.1 per cent in a March survey and 2.6 per cent in the last budget. From 2010 to 2014, the economy is projected to grow by 2.9 per cent, which is unrevised from previous forecasts.

While employment has been rebounding from the recession, and though the jobless rate has not come close to the 10 per cent projected at the height of the slump, today's survey still suggests a slow decline from the current level of 8.1 per cent. And even then, the jobless rate is not forecast to drop to the 33-year low of 5.8 per cent in the months before the recession. The recession forecasts a jobless rate of 8 per cent this year, 7.6 per cent next year, 7.2 per cent in 2012, 6.8 per cent in 2013 and 6.6 per cent in 2014. Read the story

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What will yuan reform achieve? China's surprise decision to allow the yuan to appreciate buoyed financial markets today, though the euphoria didn't last that long. Stocks initially surged, as did the Canadian dollar and commodities such as oil , but they later lost some of the enthusiasm. In the long run, what will the announcement by the People's Bank of China achieve? Here are comments from some observers today as China made good on its pledge and allowed the yuan to rise:

Mark Chandler and Kam Bath of RBC Dominion Securities: "The move may prevent an impending trade war, it may signal overall faith in a persistent recovery and it may signal other measures forthcoming to boost domestic demand and reduce global trade imbalances."

Sacha Tihanyi of Scotia Capital: "The decision ... will not only boost the domestic Chinese buying power for imports, having a direct impact on demand for Asia's exports to China, but also allow other Asian central banks to let their currencies appreciate more rapidly against the [U.S. dollar]"

Bart Melek of BMO Nesbitt Burns: "The expected gradual revaluation of the yuan (3-5 per cent annually over the next five years or so) should help commodity demand and prices, as China shares its economic growth with the rest of the world. Copper, which continues to be BMO Research's top commodity pick, is expected to be among the biggest beneficiaries, as it is forecast to post a material deficit next year."

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