Financial flows

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Second quarter 2008

Financial flows note to readers

Highlights

Total funds raised by domestic non-financial sectors on financial markets amounted to $264 billion in the second quarter (seasonally adjusted at annual rates), a sizeable increase from the previous quarter. The overall government sector’s borrowing rebounded. This, along with an increase in the corporate sector’s demand for funds, contributed to the advance in total funds raised.

The largest share of private sector demand for funds continues to come from the household sector, a trend that emerged in 2002.

Chart E.1 Overall demand for funds up

The S&P TSX Composite was among the few major stock indices in the world to post a gain in the second quarter. The index rallied to close the quarter up 8.4%, with the index breaking the 15,000 mark for the first time in May 2008. Energy stocks, which account for almost one-third of the TSX composite index, continued to bolster the Canadian equities market. Although oil prices reached record highs during the quarter, the Canadian dollar eased from its November 2007 peak, closing out the second quarter of 2008 at 98 cents U.S.

The Bank rate held steady at 3.25% over the quarter. However, the 5-year conventional mortgage rate increased by 50 basis points, reflecting increased risk in the credit market. Bond yields increased during the second quarter, following four consecutive quarters of decline.

Household sector

Chart E.2 Household demand for funds continues to slow

Household demand for funds, in the form of mortgages and consumer credit, decreased in the second quarter. Mortgage borrowings continued to slow along with declines in new housing construction, renovations and transfer costs.

Growth in personal income and personal expenditures moderated during the second quarter. Purchases of motor vehicles declined after increases in the previous two quarters, contributing to the deceleration in household demand for consumer credit.

Household debt as a percentage of personal disposable income edged up slightly to a new high of 125.1%. Meanwhile, debt servicing charges remained unchanged at around 8% of personal disposable income.

Corporate sector

Chart E.3 Corporate sector continues to build surpluses

The corporate sector’s position as net lender to the rest of the economy continued to strengthen in the second quarter of 2008. Undistributed corporation profits continued their upward trend, sustained by strong earnings in oil and gas extraction.

Rising demand for borrowed funds by private non-financial corporations in the quarter reflected significant new bond issuances. Overall funds raised were applied to financial investments and other uses, including inventory accumulation.

Financial institutions continued to increase their overall financial assets, albeit at a much slower pace. Growth in consumer credit eased in the second quarter, reflecting a slowdown in household demand for durable goods.

Government sector

Chart E.4 Government borrowing returns

Governments returned to credit markets in the second quarter of 2008, led primarily by the federal government’s net new issuance of short-term paper. The level of demand for funds was impacted by the federal government’s borrowing on behalf of government business enterprises.

The overall government sector continued to be a net lender to the rest of the economy, as government saving expanded in the quarter. Government saving was up strongly mainly due to taxes received from corporations and investment income.

Data tables

• Table E.1 Financial market summary table
• Table E.2 Sector accounts - Persons and unincorporated businesses
• Table E.3 Sector accounts - Corporations and government business enterprises: Total
• Table E.4 Sector accounts - Government
• Table E.5 Sector accounts - Non-residents

Information on methods and data quality available in the Integrated Meta Data Base: 1804.