Canada Stands Out In The Global Debt Debate
What’s going on here?
Rising government debt has shaken global markets, but Royal Bank of Canada says Canada’s healthier fiscal stats are setting it apart as Ottawa gears up for its 2025 budget.
What does this mean?
Concerns over debt have pushed up long-term bond yields in France, the US, the UK, and Germany, sparking fears about public finances across much of the developed world. With Canada preparing its next budget, RBC is weighing whether those worries spill over. Canada’s overall government debt might look steep compared to some AAA-rated countries, but when you factor in its financial assets, net debt is the lowest in the G7. Plus, Canada’s deficits have stayed smaller and less sticky than those elsewhere, with RBC highlighting this as a sign of resilience. Risks remain—a US downturn or trade shock could still knock Canada’s fiscal plans off course—but so far, that flexibility has allowed Ottawa to support the economy without losing credibility. RBC argues that as long as Canada keeps that wiggle room, budget moves aimed at long-term growth should keep investor confidence steady.
Why should I care?
For markets: Fiscal flexibility is in demand.
Canada’s strong balance sheet is catching the eye of debt investors as markets react to elevated deficits elsewhere. RBC notes that investors may be more forgiving of extra government spending here if it’s seen boosting resilience. With net debt running below its G7 peers, Canada could keep a borrowing edge—potentially supporting a steadier loonie and Canadian bond market if global volatility ramps up again.
The bigger picture: Canada leads on fiscal discipline.
Major economies are scrambling to manage debts and deficits as growth slows, but Canada’s lighter net debt and more modest deficits give it extra breathing room. As Ottawa releases its next budget, the spotlight will be on how it balances short-term support with strategies for weathering shocks down the road—potentially offering a fiscal playbook for others to watch.
