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Briefing highlights

  • HSBC warns on consumer debt
  • Warns, too, on betting on home equity
  • Markets at a glance
  • China’s growth dips to 6.8 per cent
  • Cenovus sells Palliser assets
  • Rogers profit more than doubles


'Complacency'

HSBC fears Canadians now have a "potentially dangerous complacency" toward debt.

And that many are betting on funding their retirement through a rise in home equity. Not wise, warned HSBC Securities (Canada) chief economist David Watt.

In a lengthy report on how Canadian households have become overzealous when it comes to credit, Mr. Watt noted how consumers have been warned for years now that their habits could get them into trouble, and that a debt hangover is set to begin, rippling through the economy.

This comes as policy makers - the Office for the Superintendent of Financial Institutions is the latest, just this week - move to ease inflated housing markets and severely high debt burdens.

"We expect the level of debt in the economy to pose a headwind to GDP growth in coming years," Mr. Watt said.

"In particular, given that imbalances in the household sector have become more accentuated in recent years, we see some risk of balance sheet recession as the household sector heads toward a period of deleveraging."

That would play out over the next couple of years.

Household consumption and residential investment should account for a 2.1-percentage-point contribution to growth this year, helping gross domestic product to expand by 3.1 per cent.

But that contribution will fade in 2018 and 2019, Mr. Watt added, with economic growth slowing to 1.9 per cent and 1.5 per cent, respectively.

"Two issues that could weigh on the ability of households to borrow as easily to support consumption include higher interest rates and macro prudential policy moves introduced to manage overheated housing markets and tighten mortgage lending," Mr. Watt said.

"Despite warnings in 2010 from policy makers that, without a change in behaviour, more households would be susceptible to financial stress from an adverse shock, habits have not changed," he added.

"Hence, we continue to see the household sector as accident prone, with a complacency toward debt which could prove disruptive to the economy."

There aren't many signs of stress at this point, Mr. Watt said, but the risks are certainly there.

Mr. Watt had a specific warning for those who think they can bolster their retirement through gains in home equity: Don't.

He cited an Ontario Securities Commission survey that showed this is the thinking among almost half of homeowners in the province who are 45 years old and up.

"This is the case even though households have been tapping their home equity as a source of funds to maintain current spending levels," Mr. Watt said, adding this math:

Statistics Canada estimated that homeowner equity represents 74.2 per cent of real estate. But home equity lines of credit, or HELOCs, are deemed consumer credit, rather than residential mortgage debt. So when you add in the $226-billion of outstanding HELOCs, equity slips to 70 per cent of real estate.

"Some households, particularly those that might not be adequately prepared for retirement, are vulnerable to a housing market correction," Mr. Watt warned.

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Markets at a glance

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Cenovus sells assets

Cenovus Energy Inc. is selling $1.3-billion in assets in southeastern Alberta, the latest in a series of deals.

The oil patch company said it struck a deal to sell its Palliser crude and natural gas properties to Torxen Energy and Schlumberger.

The money will go toward its debt-reduction strategy.

"Our strategy to optimize our portfolio by selling non-core assets and using the proceeds to pay down debt is firmly on track," chief executive officer Brian Ferguson said in a statement."

We continue to target between $4-billion and $5-billion in announced asset sale agreements by the end of the year, and we remain committed to returning to our long-term debt ratio target."

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China's growth solid

Economic growth "held up well" in China in the third quarter, dipping to 6.8 per cent from the second quarter's 6.9 per cent.

As always, economists questioned Beijing's official numbers, though they added that the readings are similar to their own.

"Both the official figures and our China activity proxy suggest that growth help up well last quarter, and so did the monthly activity data in September," said Julian Evans-Pritchard, China economist at Capital Economics.

"However, a less supportive fiscal policy stance and slower credit growth should result in a slowdown over the coming months."

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Rogers boosts subscribers

Rogers Communications Inc. continues to win wireless customers at a quick pace, adding the most contract subscribers in eight years in the third quarter, and says it plans to put some of the associated profit growth to work by spending more to improve network quality.

The Toronto-based cable and wireless company said its revenue grew by 3 per cent in the period to $3.6-billion largely on the strength of its mobile division, where service revenue was up 7 per cent to $2-billion, The Globe and Mail's Christine Dobby reports.

Profit more than doubled to $467-million, but the surge was due in part to a favourable comparison to the same time last year, .

It also raised its guidance.

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