CIBC World Markets: Corporate Canada’s Debt Levels will Lessen effect of Rate Hikes

CA new report from CIBC World Markets Inc. notes that while Canadian consumers are sitting on record levels of debt, Canada’s corporate sector finds itself facing the opposite situation with its debt levels at record levels.

The report notes that corporate debt service payments are equal to about 30% of total operate earnings today against 100% or more at the time of Canada’s last full blown recession in 1990 – 1991.

Peter Buchanan, senior economist and author of the report noted that in contrast to the household sector, corporate debt to equity ratios have declined more or less steadily in the past 10.5 years. Currently, we are at 54%, which is the just a little more than half the levels at the time of the economy’s last full recession, but about 15% below U.S. levels.

Buchanan made it clear that everything depends how aggressively the Bank moves to reverse itself. The Bank of Canada has cited that a high Canadian dollar, and heavy consumer debt loads are presenting to be potential obstacles to a normal, healthy paced recovery.

This suggests that if anything, the Bank of Canada will move on the side of caution, which is good news, given the recovery’s continuing vulnerabilities.