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Growth in consumer credit debt in Canada is no longer outpacing income, and is rising at its slowest pace in a decade.

Excluding mortgage debt, the rate at which Canadians are borrowing money for consumer goods has slowed so much, it is on the verge of entering negative territory, CIBC said in a report on household credit released Thursday.

"Debt is rising more or less at the same rate as income when it comes to consumer credit," said Benjamin Tal, senior economist at CIBC.

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"We are seeing some early signs of softening in the credit markets, and that's a good sign given the fact that our debt load is relatively high and we have to do something about it."

Overall household credit is now rising at the slowest year-over-year pace since 2002, the report says. And inflation-adjusted non-mortgage consumer credit is now rising at the slowest pace since the early 1990s. "At this rate of slowing, growth in non-mortgage consumer credit will enter negative territory in the second half of the year," the report says.

While the numbers should give the Bank of Canada some reason to cheer, there is still work to be done to reduce the household debt load.

Total debt including mortgages continued to outpace income in the first quarter, with total credit outstandings rising by 1.8 per cent quarter over quarter, while income rose by 0.7 per cent, the CIBC report says. Last month, the Certified General Accountants Association of Canada reported that household debt had hit a record $1.5-trillion, bringing the debt-to-income ratio to 147 per cent.

That increase was due to mortgage debt, says CIBC. The consumer debt-to-income ratio has, in fact, stabilized over the past year.

"While we were talking about how much debt people have, slowly, without people noticing, we actually started reducing our debt, or slowing the rate at which we accumulate debt, especially in areas that are not related to the housing market, namely what we call consumer credit," Mr. Tal said.

Looking ahead, CIBC says real annual credit growth will average 4 per cent to 5 per cent in the coming five to seven years, about half the average of 8 per cent seen in the past decade.

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While consumers are curbing their spending, the Bank of Canada's business outlook survey, released on Monday, offers signs that businesses will pick up the slack, says Peter Buchanan, CIBC senior economist.

"The early parts of the recovery were driven by the consumer and households. From here, certainly, business spending will be carrying more of the load," Mr. Buchanan said.

"There are some reasons to think that companies will be hiring more and we may get a bit of offsetting support countering any weakness."



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