Household debt and the housing market remain key risks, but Canada’s ‘Aaa’ sovereign credit rating is underpinned by decent economic performance and recovering government finances, Moody’s Investors Service says.
In a new report, the rating agency says that Canada’s relatively solid economic performance, favourable trends in the federal government’s finances and debt levels, and the country’s strong institutional and regulatory framework continue to support its ‘Aaa’ rating with a stable outlook.
“After a recession at the time of the global financial crisis, the economy recovered and continues to show positive momentum, supporting improvement in government finance,” says Steven Hess, a senior vice president at Moody’s.
Additionally, it notes that government debt is relatively low at the federal level, and the federal budget is projected to return to balance in the current fiscal year. Another support for the rating is the strength of the banking system, Moody’s adds.
However, it also warns that household debt is high and continues to rise, and house prices are rising too. “This combination presents a potential risk to the banks and to the federal government directly, as it guarantees a considerable portion of
mortgages,” says Hess.
Moody’s says that long term, negative pressure on the rating could develop “if fiscal discipline erodes as a result of spending on social programs.” However, it also says that outcome appears unlikely.