Stuff you need to know

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Chartered banks began slashing their prime rates today in the wake the Bank of Canada’s 50bps cut Wednesday, just as a new report suggests that more Canadians are feeling the strain of consumer debt.

RBC started the ball rolling by announcing it was cutting its prime rate 50 basis points to 3.45%, with rivals following.

That may come as a relief to Canadians whose consumer debt has grown 4.4% to close to $2 trillion, Equinox’s latest report on consumer credit revealed today. Total consumer debt at the end of 2019 was $1.989 trillion. While the growth of non-mortgage debt has slowed (up 2.7%), mortgage debt has ballooned 5.2% to $1.341 trillion.

“Consumers have figured out the mortgage stress test and were back in the housing market,” said Bill Johnston, vice-president of data and analytics at Equifax Canada.

Average new mortgage debt reached $289,000 in the last quarter of 2019, a 7.2% increase from the year before. The average new mortgage in Toronto jumped a record 8.5% to $448,000. Vancouver rebounded 7.4% to $455,000.

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Meanwhile, delinquency rates, the percentage of credit users who have missed three or more payments, are marching higher. The non-mortgage delinquency rate rose 11% to a eight-year high nationally. British Columbia, up 14.4%, Ontario, up 14%, and Alberta, up 13.3%, led the provinces. Equifax said Alberta has now erased all its previous recovery and delinquency rates are back above their 2016 level.

And many Canadians are growing pessimistic about their finances. Two in 10 or 18% of Canadians say they will never be debt free, according to a poll by insolvency accountants MNP. Ontarians, at 21%, are the second most pessimistic in the country, next for Atlantic Canada at 25%.

Here’s what you need to know this morning:

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Bank of Canada Governor Stephen Poloz delivers speech in Toronto at 1 p.m. ET

OPEC meeting in Vienna

Justin Trudeau, Leader of the Liberal Party of Canada, will deliver remarks to supporters for an open Liberal fundraising event in Maple, Ont

Small Business Minister Mary Ng will deliver the keynote address and will participate in a fireside chat at the Women in Business and Leadership Forum in Toronto

The Canadian Taxpayers Federation will host its 22nd annual Teddy Waste Awards to spotlight 2019’s worst examples of government waste at a black-tie ceremony in Ottawa

Notable earnings: Canadian Natural Resources, Crescent Point Energy Corp., Costco, Combiner REIT, Martinrea International, Parkland Fuel

Canadian Natural Resources, Crescent Point Energy Corp., Costco, Combiner REIT, Martinrea International, Parkland Fuel Today’s Data: U.S. non-farm productivity

Corporate Canada is starting to look a bit like the land of the walking dead, but don’t worry these zombies won’t eat the economy. A recent analysis by the Bank of Canada shows that so-called zombie companies are on the rise in Canada. The Bank defines a zombie two ways: broadly, as an older company that has persistently not be able to generate enough income to make its interest payments. Its narrower definition requires further that the firm be expected to remain weak in the future. In Canada, such companies have been rising since the mid-1990s. In 2018, about 25% of Canadian firms were zombies under the broad definition and about 10% under the narrow. Canada also has a greater proportion of zombie firms than other countries. In 2016 across advanced economies, about 12% of firms were zombies under the broad definition and 6% under the narrow. The proportion of zombie companies in Canada was about twice that in the same period.

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The reason for this comes down mainly to the commodity industries. About two-thirds of zombie companies in Canada in 2018 were in industries exposed to commodity prices, with 75% in mining, 10% in oil and gas, and 15% in related industries like petroleum manufacturing and wood and paper, the Bank said. That explains the sharp pickup in 2014 seen in the charts below, reflecting the fall of metal prices in 2011-12, followed by the crash of oil and gas prices in 2014-15. So what would happen to the economy if these companies defaulted on their debts, leaving lenders and shareholders in the lurch? Despite the rather alarming statistics we just went through, the Bank found that zombie companies account for less than 2% of the overall debt, employment and market cap of all Canadian firms and thus should not pose “a significant vulnerability to the financial system.”

— Please send your news, comments and stories to pheaven@postmedia.com . — Pamela Heaven @pamheaven

With files from The Canadian Press, Thomson Reuters and Bloomberg