I too wonder what the trigger will be, probably something we haven't even thought of yet. But Canadians are no better off:
Savings down but investment skyrocketing: Bank
TORONTO - Canadians' personal savings have hit a 50-year low but they have somehow found the cash to help pay for the highest volume of investment since the Second World War, says a new study from Royal Bank.
At first glance, the numbers - based on the first three months of 1997 - present a puzzle, says chief economist John McCallum.
"If people are saving less than they ever have, then how are we financing this record-high level of investment?"
That's an important question because there's widespread worry that most Canadians' finances are on shaky ground because of high debts and low savings.
Personal savings rates, once a Canadian bragging point, have fallen from 10 per cent of the overall economy before the 1991-92 recession to a low of 1.7 per cent in the first quarter of this year.
Meanwhile, outstanding household debt is at record highs. The Bank of Canada reported in May that debt as a ratio of disposable income had hit 94.3 per cent, up from 92 per cent in mid-1996 and up from 50 per cent in 1986.
Consumer spending, however, has grown by 5.1 per cent in the 12 months ended in March. That's seven times greater than the raises they received.
Canadians are going deep into debt to pay for a consumer spending spree. They now owe $75 billion more than the federal government does.
Still, the Royal Bank's analysis suggests: Don't worry, be happy.
"Canadian savings and investment are in good shape, giving . . .corporations and consumers the ability to finance a high volume of (fixed) investment without recourse to significant foreign financing," McCallum says in a release.
Fixed investments refer to spending on machinery, equipment and construction - both residential and non-residential.
There are three reasons why Canada's low personal savings rate hasn't stood in the way of the investment boom, Royal Bank says.
- Reduced government deficits and higher corporate savings have offset the low personal savings rate. That has reduced Canada's reliance on foreign borrowing in recent years.
- Improved technology has drastically cut the cost of some fixed investments, particularly machinery and equipment.
"We now get a bigger bang for our buck when investing in technology," McCallum says, noting that the relative cost of computers has dropped even though the quality and efficiency has gone way up.
- Finally, so-called just-in-time production has reduced the need to sink money into expensive inventories.
The study also notes that while savings have shrunk, the net worth of Canadians has increased as a growing number of consumers have sunk savings into the stock market or mutual funds.
But one of the main pillars of the bank's study - that fixed investments are booming - is misleading, said Jim Stanford, economist with the Canadian Auto Workers union.
"In real terms, after you deduct depreciation of existing capital stock, investment is very low by historical standards," he said. "It's wrong to say Canada is in an investment boom."
Stanford said the Royal is twisting the numbers to justify government policies that have boosted bank profits but have eroded personal savings and, as a result, Canadian living standards.
"It's clearly a legacy of the anti-inflation, balanced-budget policies of the '90s, which are very popular on Bay Street but have been a disaster for Canadian households." |
