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Briefing highlights

  • Why Canadians are in debt trouble
  • Markets at a glance
  • BlackBerry hails ‘transformation’
  • Toshiba signs big sale of chip unit

It might be easy to dismiss Mr. Madani's comments as alarmist. But for the fact that his is the second such warning in the space of about a week.

Mr. Madani warned in a recent report that while Canada's economy is shaping up to turn in the best performance among G7 countries this year, its consumer debt levels are also the highest.

"Rising household debt, which has been supporting economic growth, isn't a recipe for long-term success," he said.

"At its current level, Canadian household debt looks outlandish when compared to the rest of the G7 and brings with it a risk of financial instability."

Household debt is a well-documented sore point in Canada, and Mr. Madani's voice is just one among many.

But in the space of just over a week now, we've also had the Bank for International Settlements (BIS) and the Organization for Economic Co-operation and Development citing either Canada's pumped-up consumer debt or inflated home prices.

And rather than the comments of a lone economist, the BIS is the voice of the world's central banks.

The weekend before last, as The Globe and Mail's Jacqueline Nelson reports, the BIS warned again that Canada risks banking stress, based on a key measure that looks at credit to gross domestic product.

The good news there is that the threat is easing since its previous report. The bad news is that this measure remains above a critical threshold.

Canadians took record low interest rates to heart, borrowing like there's no tomorrow and bidding up home prices in cities such as Toronto and Vancouver.

Of course, it now is tomorrow, and rates are on the rise, leaving many families vulnerable.

Federal and provincial governments have tried to tame those housing markets. But, as Royal Bank of Canada economist Laura Cooper has documented, consumer credit in the form of loans, personal lines and plastic is picking up even as the pace of mortgage borrowing eases.

Mr. Madani has, for a long time now, predicted a Canadian housing bust that hasn't happened. While other economists have stopped short of that, instead projecting a soft landing, they are always quick to point out the risks of a debt-to-income ratio that stands at a record level, in this case among the heaviest among developed countries.

"If that's not bad enough, the flow of funds data highlight how freakish the situation has become," Mr. Madani said.

"In contrast to the G7, the household sector in Canada was a large net borrower in 2015, borrowing more than 3 per cent of GDP," he added.

"There are only a handful of countries that, according to OECD data, share this position and one is Greece."

Comparing Canada to the poster child of a meltdown is somewhat alarming, though, of course, Greece's troubles go well beyond ours, infamously where government finances are concerned.

And, of course, Greece has been through deep economic trouble, with a jobless rate of almost 22 per cent, compared with Canada's 6.2 per cent.

Moody's Analytics, a sister company to the ratings agency, also cited Canada's household debt issues in the past few days.

Moody's economist Brendan LaCerda, though, believes Canada could withstand the worst.

"Canadians' borrowing binge has put the economy in a precarious position," Mr. LaCerda said.

"Low interest rates have fuelled demand for mortgages and homes, spurring a rise in property prices," he added.

"In turn, costlier houses have necessitated new home buyers borrowing even more. This cycle is inducing fears of a bubble. If a recession were to hit the economy, many households would find themselves with negative equity and reduced incomes, raising the spectre of a swell in non-performing loans as homeowners default."

But Canada Mortgage and Housing Corp. insures the bulk of mortgages, he noted, as have others.

"The government fully backs most of the nation's mortgage insurance," Mr. LaCerda said.

"Fortunately, the government's finances appear healthy enough to sustain a large bailout in a severely adverse scenario."

Barclays, too, said it doesn't fear a meltdown, saying in a report on Canada's banks that unemployment is still "the key" to credit.

"With the domestic economy chugging along, mortgage credit has remained stable despite rising household debt levels," said Barclays' John Aiken.

"In our view, the unemployment rate remains the more critical indicator of mortgage credit growth and arrears. With unemployment declines fuelling additional improvements in consumer credit quality, it remains difficult to see any material uptick in [bank] provisions.

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Markets at a glance

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BlackBerry hails 'transformation'

BlackBerry Ltd. is hailing "our complete transformation to a software company," posting a second-quarter profit of $19-million (U.S.).

Rhe profit of 4 cents a share, basic, compared to a loss of $371-million or 71 cents a year earlier.

Revenue dipped to $238-million from $334-million.

The Canadian company, once known for its dominance of the smartphone market, also boasted of what is now record software and services revenue of $185-million.

"We achieved historical highs in total software and services revenue and gross margin, as well as the highest non-GAAP operating margin in over five years, reflecting our complete transformation to a software company," chief executive officer John Chen said in unveiling the numbers, referring to

"Our position as a market leader in security continues to strengthen," he added, as the company projected software and services revenue gains of between 10 and 15 per cent this year.

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