The coronavirus pandemic has created significant financial uncertainty for many Canadians, pushing them to forego current spending and instead save more of their disposable income. As a result, a recent CIBC report found that Canadian households and businesses have now accumulated a whooping $170 billion in excess cash – the largest amount of cash on record.
The CIBC report, which was analyzed by Bloomberg, estimated that Canadian households are holding onto $90 billion in additional cash, which amounts to approximately 4% of all consumer spending. Businesses in the meantime, are sitting on at $80 billion in cash. However, the situation is unique because the savings rate has increased, which in turn has reduced spending significantly, despite income levels rising due to various government supports. Indeed, the report estimates that the savings rate was approximately around 13%, compared to a 3.6% savings rate before the pandemic.
Likewise, Canadian businesses have been increasing their cash positions by approximately 15% on a year-over-year basis, with the federal government’s Canada Emergency Business Account loan program boosting those cash positions. The report suggests that many businesses have been accumulating the excess cash in deposit accounts, with some even using it for insurance purposes.
According to CIBC deputy chief economist and co-author of the report Benjamin Tal, the businesses that are hoarding the additional cash are likely the ones that are not directly impacted by the pandemic, and instead are likely benefiting from it. Given the current state of the economy, many of those companies are not persuaded to invest their accumulated savings, and are rather waiting for an optimal economic situation to arise amid the pandemic.
Information for this briefing was found via Bloomberg. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.