The Bank of Canada said high household debt and imbalances in the housing market remain key vulnerabilities in the Canadian economy.
In its annual financial system review released Thursday, the central bank identified the main factors that could have negative consequences for the economy, while painting an overall picture of a stable financial system.
Bank of Canada governor Stephen Poloz said that progress has been made to address both issues.
“New measures have curbed borrowing, reduced speculative behaviour in housing markets and made the financial system more resilient,” he said in the report.
“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.”
For the first time, the bank also identified climate change as a possible threat to the economy.
“We want to better understand the risks that climate change poses to the economy and financial system,” the report said. It said the Bank of Canada will begin “a multi-year research effort,” as well as collaborate with domestic and international partners to build the bank’s capacity to analyze climate risks.