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.

Just Posted

Bicycle incident on Daimer Drive in West Kelowna

One man has been taken to hospital

Kikinee Salmon Festival returns to Kelowna for another year

The Kikinee Salmon Festival is taking place this Sunday at Mission Creek Regional Park in Kelowna.

Bulls on parade down Glenmore

A small bull ran into traffic on Glenmore Road in Kelowna earlier this morning

City of Kelowna to host public engagement sessions on future planning

The city is taking feedback on the direction of the OCP, the TMP and the 20-year Servicing Plan

Kelowna’s first-ever fringe festival starts Thursday

The international festival will host 12 different acts over three days

VIDEO: Drone footage documents work to free salmon at Big Bar landslide

Video shows crews working to remove rocks and wood, and transporting salmon by helicopter

B.C. party bus company to be monitored after 40 intoxicated teens found onboard

Police received tip teens and young adults were drinking on party buses and limousines in Surrey

North Okanagan’s own CSI digging into crime mysteries

Forensic Identification Section a specialized support unit used in various cases

Rick Mercer calls out Conservative candidate in B.C. for fake meme

‘Not true. All fake. Please Stop,’ tweeted Rick Mercer in response

Craft breweries showcased during Penticton Beer Week

To celebrate, all seven of the city’s breweries will be collaborating on a limited release draft

Homeless man arrested after assaulting Vernon race volunteer

Course markers behind incident in Kalamalka Lake Provincial Park race

Death race runners to artists, South Okanagan speaker series has it all

The Pecha Kucha Penticton series returns with the theme of: We Made It

Sagmoen’s in-custody statements under judge’s scrutiny

Sagmoen’s lawyer said statements made by him while in police custody were not provided voluntarily

Bear killed in Kimberley after chasing girl, wreaking havoc on town

This particular brown-coloured bear has been the subject of many calls this summer; very food habituated, CO says

Most Read