For a while at the beginning of this decade, interest rates were low, employment levels were improving, and economists were moaning that Canadians were not saving enough and were piling up too much debt. Not anymore.
As Merrill Lynch's top Canadian strategist David Wolf notes in a recent note to clients, Canadians are putting some of their newfound wealth in the bank. That's good news for the economy because it means that consumers will be better able to weather any economic slowdown, when and if that day comes.
Here's what Wolf had to say:
Canada has benefited from a hugely positive terms of trade shock that represents an inward transfer of income from the rest of the world. Like a worker who gets a big raise, doesn't know if it'll stick and only gradually adjusts, so a good bit of Canada's upside national income surprise has been saved rather than spent.
We calculate that Canadian gross national savings hit 23.4% of GDP in 2005, the second highest rate of the past thirty years. Since 1993, Canada's national savings rate has gone from the G7's lowest to its second-highest (behind Japan), rising 10 [percentage points]; no other G7 country has seen its rate increase more than 1 [percentage points].