The Bank of Canada in Ottawa is seen on Thursday, May 16, 2019. THE CANADIAN PRESS/Sean Kilpatrick

Bank of Canada identifies climate change as important economic weak spot

Climate-change risks include the consequences of extreme weather events, like flooding and severe droughts.

The Bank of Canada is highlighting its expanding concerns about climate change and, for the first time, is listing it among the top weak spots for the economy and the financial system.

The central bank’s financial system health report Thursday included climate change as an important vulnerability, elevating it to a category alongside its long-running worries about household debt and apprehension about the housing market.

The assessment is part of the Bank of Canada’s annual report card that explores key weaknesses and risks surrounding the stability of the financial system.

“Economic activity and the environment are intertwined,” said the bank, which, like its international peers, is starting to make climate-change factors part of its financial stability research.

“Most experts agree that the global climate is changing and that this has growing implications for the economy. But the range of possible outcomes is large.”

Climate-change risks include the consequences of extreme weather events, such as flooding, hurricanes and severe droughts.

In Canada, the bank said insured damage to property and infrastructure averaged about $1.7 billion per year between 2008 to 2017 — 8.5 times higher than the annual average of $200 million from 1983 to 1992.

Beyond the physical damage, the bank said the shift to a lower-carbon economy will be complicated and could be costly for some.

The transition will likely lead to complicated structural adjustments for carbon-intensive sectors, such as oil and gas, and could leave insurance companies, banks and asset managers more exposed, the report said. In some cases, the bank said fossil fuel reserves could be left in the ground, which could drain the value of important assets.

The bank said the transformation to a lower-carbon economy also will likely provide a boost to sectors like green technology and alternative energy.

“Both physical and transition risks are likely to have broad impacts on the economy,” the report said.

In addition to climate change, the report also underlined the emerging vulnerability of rising corporate debt levels in the non-financial sector — a growing concern seen in other advanced economies. Some of the borrowing is of lower quality and the situation needs to be monitored closely, the bank said.

Last year, non-financial corporate debt relative to income was at 315 per cent, which the bank said was “well above its historical average.”

The bank said vulnerabilities linked to high household debt and the once-hot housing market have “declined modestly but remain significant.”

Both have been persistent weak spots in recent years and the improvements are due to a slowdown in credit growth since 2017 that coincided with stricter mortgage-lending policies and past interest-rate hikes.

The share of Canadians falling behind their debt payments remains “low and relatively steady,” the bank said. It noted, however, that since 2015 — after the oil-price slump — it’s seen a “small but steady increase” in the number of households in Alberta and Saskatchewan that have fallen behind by 60 days or more on at least one loan payment.

Housing prices in key markets of Toronto and Vancouver have cooled in recent years, but imbalances in real-estate markets are still an important vulnerability, the bank said.

“New measures have curbed borrowing, reduced speculative behaviour in housing markets and made the financial system more resilient,” Bank of Canada governor Stephen Poloz said Thursday in a statement.

“While the fundamentals in the housing sector remain solid overall and the sector should return to growth later this year, we continue to monitor these vulnerabilities closely.”

Overall, the bank said Canada’s financial system is resilient, but the risk has edged up since its last report in June 2018, due in part to factors such as slower economic growth and uncertainty around global trade.

The most-important threats to the financial system are a severe Canada-wide recession, a big house-price correction and a sharp re-pricing of risk in markets, the bank said.

READ MORE: Bank of Canada holds interest rate, drops growth forecast for 2019

READ MORE: Canada’s failure to fight climate change ‘disturbing,’ environment watchdog says

Andy Blatchford, The Canadian Press


Like us on Facebook and follow us on Twitter.

Get local stories you won't find anywhere else right to your inbox.
Sign up here

Comments are closed

Just Posted

Shuswap resident spots waterspout near Salmon Arm

The rare weather event was spotted early in the morning on July 4.

Seymour Arm landslide interrupts drinking water to 500 people

The July 3 slide damaged a water system and a logging road.

Police seek boat, trailer stolen from Salmon Arm property

The aluminum fishing boat has been gone since June 29

Collision snarls traffic west of Sorrento

Reports on social media suggest the crash involved two semi trucks.

Princeton RCMP arrest suspects in violent Salmon Arm home invasion

Two men who allegedly staged a violent home invasion in Salmon Arm… Continue reading

VIDEO: Musqueam Chief captures captivating footage of bald eagle catching meal

‘This is why we have chosen to live here since time immemorial,’ Chief Wayne Sparrow’s nephew says

Police searching for missing Lake Country man

David Anthony Jenken, 65, was reported missing Friday and was last seen on June 28

PHOTOS: B.C.’s top doc picks up personalized Fluevog shoes, tours mural exhibition

Murals of Gratitude exhibit includes at least one portrait of Henry alongside paintings of health-care workers

Okanagan school drops ‘Rebels’ sports team name, citing links with U.S. Civil War

Name and formerly-used images “fly in the face” of the district’s human rights policy, says board chair

In troubled times: Independence Day in a land of confusion

Buffeted by invisible forces and just plain worn out, the United States of America celebrates its 244th birthday

Stop enforcing sex work laws during COVID-19, advocates say

There are provisions in Canada’s prostitution laws that make workers immune from prosecution, but not from arrest

Liberal party finished 2019 having spent $43 million, raised $42 million

All political parties had until midnight June 30 to submit their financial reports for last year

B.C. teacher loses licence after sexual relationships with two recently-graduated students

The teacher won’t be allowed to apply for a teaching certificate until 2035

White-throated sparrows have changed their tune, B.C. study unveils

Study marks an unprecedented development scientists say has caused them to sit up and take note

Most Read