Canada's overall financial condition improved markedly in 2004, according to National Balance Sheet data report today by Statistics Canada. Total assets grew 5.7% and nonfinancial assets also grew 5.7%, both more than in 2003. Nonfinancial assets include buildings, equipment, consumer durable goods and the value of land; this sum is also known as "national wealth". Total liabilities expanded by 5.1%, more than the year before, but less than assets. So the difference, a measure of net worth for the entire economy, grew by 6.9% to nearly C$4.4 trillion. These data are all contained in Haver's CANSIM database.

Total assets in Canada have grown more rapidly than total liabilities since the middle of 1999, as seen in the first chart. Growth of both slowed with sagging share values and the slowdown in activity during 2001, but assets have remained on a stronger uptrend than liabilities. Nonfinancial assets have increased at a higher rate than liabilities since 2002.

These overall relationships in the Canadian economy and financial system have an interesting relationship to the value of the Canadian currency. The second chart shows a substantial 92% correlation between the ratio of net worth to total liabilities and an index of the Canadian dollar against six other currencies. This ratio may be seen as an indication of leverage: how big is the role of debt in financing macroeconomic activity the nation. It seems intuitive that such a fundamental measure of economic conditions might influence the currency value. In the last couple of years, the weakness of the US dollar may have dominated as a determinant of the exchange rate. Even so, through the 15-year history of the balance sheet data, it is fascinating that the Canadian dollar weakened as long as net worth deteriorated relative to borrowing, but has tended higher since that ratio turned upward in 1999.