Canadians are mired in a “psychological recession” even if the technical definition of a recession has not been met since the first half of 2020, says Craig Worden, president and chief innovation officer at Pollara Strategic Insights.
Speaking at last week’s annual Investment Funds Institute of Canada (IFIC) conference, Worden said the results of IFIC’s Canadian Mutual Fund & Exchange-Traded Fund Investors Survey, conducted each year by Pollara, shows that 82% of survey respondents believe the country is in recession.
“Canadians have been under so much financial pressure due to inflation and the rising cost of living,” said Worden in an interview with Investment Executive. “Times feel tough.” GDP growth came in at 0.4% annualized in the first quarter of 2024 and 0.5% in the second quarter. Those are anaemic numbers, but they don’t constitute a recession, which is traditionally defined as two consecutive quarters of negative gross-domestic-product (GDP) growth.
Half of Canadian investors told Pollara that inflation limits what they can afford to invest currently. Twenty-six per cent said they’re investing somewhat less, due to inflation, while 23% are investing much less.
Interest rates are having a more moderate effect on investing by Canadians. Twenty per cent said they’re investing somewhat less due to high interest rates, and 15% are investing much less.
Investors anticipate more of the same in the new year. Nearly half of respondents (49%) said inflation will cause them to invest less and 35% said the same about interest rates next year.
Lending rates shouldn’t be discounted in any of this though. “Whether you are paying a mortgage or not has a massive impact on how you characterize your personal financial situation,” said Worden. “Those who are paying variable mortgages are most likely to report a poor financial situation… whereas those who have paid off their mortgages are quite happy.”
Worden said rent payers are “also feeling the pinch.”
The Bank of Canada’s current Canadian Survey of Consumer Expectations reported a slight decline in consumer negativity, relative to the previous quarter. Almost two-thirds of Canadians (63%) said they are spending less due to interest rate expectations, and 58% said the same because of their cost-of-living outlook. Both results represent a small improvement over the previous quarter, but sentiment “remains subdued,” according to the report.
Just over half of respondents (52%) said inflation had made them worse off; 36% said the same about interest rates. The survey was done in August, followed by interviews in September.
In remarks delivered to the House of Commons finance committee this week, Bank of Canada Governor Tiff Macklem said the four overnight rate cuts made so far this year are making a difference. “You are starting to see some impact,” he said. “Some of it is more anecdotal. I expect we will see more in the data going forward.”