Financial flow accounts

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Total funds raised by domestic non-financial sectors decreased to $235 billion (seasonally adjusted at annual rates) in the fourth quarter from $271 billion in the third quarter. Total government borrowing and borrowing by non-financial private corporations eased in the fourth quarter while household borrowing reached $108 billion, up from $93 billion in the previous quarter.

Over the last quarter of 2009, funds raised by way of bonds, mortgage and consumer credit accelerated while equity financing slowed down. There was a notable switch from equity financing to domestic fixed-income instrument financing by non-financial corporations. The federal government and corporations reduced their short-term debt with significant redemptions of short-term paper.

Rising equity prices and higher Government of Canada marketable bond yields along with stable mortgage rates highlighted financial market developments in the fourth quarter. The Standard and Poor's composite index increased almost 3%, marking the third consecutive quarterly increase and leading to a year-over-year increase of above 30%. The Canadian dollar appreciated for the fourth consecutive quarter relative to its US counterpart, closing the quarter at US 94.8 cents.

Borrowing costs were relatively stable during the fourth quarter of 2009. The 5-year conventional mortgage rate remained almost unchanged at 5.5% while average yields on Government of Canada 3-5 year bonds increased slightly in the fourth quarter. The Bank of Canada's target overnight rate remained unchanged during the quarter.

Persons and Unincorporated Businesses

Household borrowing increased during the fourth quarter, reaching $108 billion (seasonally adjusted at annual rates), up from $93 billion in the previous quarter. But it remained below the peak reached in the second quarter of 2008 ($125 billion).

Mortgage borrowing by households increased for a third consecutive quarter, reflecting higher existing home sales and renovation activity as well as an increase in new housing construction. Consumer credit rose 7% to $43 billion during the quarter, due in part to increased spending on durable goods, particularly motor vehicles.

Recent increases in borrowing have been offset by lower interest rates resulting in a decrease in the household debt service ratio (interest payments as a percentage of personal disposable income) to 7.45% in the fourth quarter, from 7.98% in the fourth quarter of 2008. The debt service ratio was virtually unchanged from the third quarter.

Government

The overall government sector was again a net borrower from the rest of the economy. The growth of revenues outpaced that of outlays resulting in a lower net borrowing position from the third quarter of 2009.

Borrowing by all levels of government decelerated to $98 billion in the fourth quarter (expressed at seasonally adjusted annual rates, or $25 billion on a quarterly basis), down from $119 billion in the third. Both provincial and federal governments raised funds largely by issuing bonds. The federal government retirement of short-term debt accelerated in the fourth quarter of 2009.

Corporations

The corporate sector remained a net lender to the rest of economy.

Equity financing of non-financial private corporations slowed in the fourth quarter, while bond issuance strengthened. Their net issuance of bonds in the fourth quarter was $31 billion, up from $20 billion in the third quarter. The corporate sector has used a diverse set of financing vehicles since the fourth quarter of 2008. Funds were largely raised through loans in the fourth quarter of 2008, followed by a return to equity financing in the first three quarters of 2009, and bond issuance in the fourth quarter.

Institutional investors and financial institutions used both fixed-income instruments and equity to finance their activities.

Non-residents

Canada posted its fourth consecutive quarterly current account deficit, with the deficit decreasing from the previous quarter. Consequently, the non-resident sector continued to be a net lender in the fourth quarter of 2009, albeit at a slower pace compared to the previous quarter. Foreign investors purchased Canadian securities, especially bonds of all levels of government. Meanwhile, foreign investment in equities decelerated, while investment in short-term paper decreased. Canadian institutions increased their loans to foreigners, while institutional investors reduced portfolio investments abroad (unadjusted for seasonal variation).

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Available on CANSIM: tables 378-0015 to 378-0048.

Definitions, data sources and methods: survey number 1804.

The National economic accounts module, accessible from the Key resource section of our website, features an up-to-date portrait of national and provincial economies and their structure.

Detailed analysis on today's release, including additional tables, will soon be found in the fourth quarter 2009 issue of Canadian Economic Accounts Quarterly Review, Vol. 8, no. 4 (13-010-X, free) available from the Key resource module of our website under Publications.

The complete quarterly Financial Flow Accounts: Data Tables, fourth quarter 2009, Vol. 2, no.4 (13-020-X, free), is also now available from the Key resource module of our website under Publications.

For more information, or to enquire about the concepts, methods or data quality of this release contact the information officer (613-951-3640, iead-info-dcrd@statcan.gc.ca), Income and Expenditure Accounts Division.