Value of natural resources and foreign investments hit nation's pocket
Canada’s net worth took a hit as the market tumult of 2022 takes its toll but it remains significantly up since the end of 2019.
At the end of the fourth quarter, Canada's net foreign asset position and national wealth were $16,769.7 billion, a 2.4% drop from the third quarter, which in turn had the worst quarterly loss since the fourth quarter of 2008, a decline of $602.2 billion (-3.4%).
By the end of 2022, the country's net worth had decreased 3.4% from the end of 2021. However, the country’s net worth has increased by 34.8% since the end of 2019—more than twice as fast as it did during the previous three years (+15.4%).
The greatest quarterly loss since the end of 2008 occurred in the fourth quarter of 2022, when the total value of non-financial assets in Canada, generally known as national wealth, fell by 3.9% from the third quarter to $15,930.0 billion. This was caused by a fall in the value of Canada's natural resources of $615.2 billion (excluding land).
Natural resource values decreased by $87.6 billion in 2022 after surging by almost $900 billion in the first two quarters of the year as resource wealth reverted to levels reached late in 2021. The value of residential real estate fell for a third consecutive quarter, dropping $109.2 billion to $8,240.6 billion in the fourth quarter of 2022, further contributing to the loss in the country's wealth.
In contrast to the losses seen in the second and third quarters of 2022, the decline in the value of residential real estate was less severe. By the conclusion of the fourth quarter, Canada's net foreign asset position—the difference between its overseas financial assets and liabilities—rose by $223.9 billion from the third quarter to $839.7 billion.
Due to a recovery in the global equities markets, this was the first quarter in which there has been growth since the fourth quarter of 2021. Canada's position as a global investor declined by $467.7 billion overall in 2022 on an annual basis.
The rise in household disposable income (+3%) was almost twice as high as the growth in household consumption (+1.6%) in the fourth quarter, which increased household net savings and caused the savings rate to increase to 6%, significantly above the 2.8% rate seen in the fourth quarter of 2019.
Households reported inflows of $45.9 billion in the fourth quarter, pushing household currency and deposits above the $2 trillion threshold; part of this increase was probably redirected from other assets. More than double the $104.3 billion increase seen in 2021, household holdings of cash and deposits increased by $159.6 billion throughout 2022.
In the fourth quarter, households' total financial assets increased by 3.4% ($305 billion), but that growth was partially offset by a $105 billion decline in non-financial assets as real estate activity and valuations continued to decline, albeit to a lesser extent, and the housing market struggled with still higher interest rates.
As the Bank of Canada tightened monetary policy even more quickly, house prices also fell dramatically in the middle of the year. After two years of high borrowing, the demand for cash from the federal government decreased substantially in the second half of 2022 because of the significant depreciation of the Canadian currency versus the US dollar during the year.
Precipitous global forces had an impact on energy prices, which spiked in the outset of 2022 and then rapidly declined by the year's close. Bond rates spiked to levels last seen during the financial crisis of 2008, while equities markets had their first quarterly decline since the first quarter of 2020, making 2022 overall a tumultuous year for asset classes.