Amid rising debt loads and weakening labour markets, household consumption in Canada has been driven by immigration. Against this backdrop, consumer spending growth is likely to slow in the year ahead, says Fitch Ratings.
In a new report, the rating agency said consumer spending rose in the first half, largely thanks to strong population growth.
In the second quarter, consumer spending was up 0.1% on a quarter-over-quarter basis, Fitch reported. On a per capita basis, spending was down 0.5% quarter over quarter, and was down nearly 3% year over year.
While household net worth rose by almost 4% in the first half, Fitch said, “Households remain highly indebted, with liabilities equivalent to 177% of income.”
The debt service burden, which is already historically high, is expected to rise higher, as mortgages continue to reprice at higher rates in the months ahead, Fitch forecasted.
“Despite the [Bank of Canada’s] rate cuts, next year will see a large number of mortgages reset onto higher rates than before, adding to the pressure on homeowners and weighing on consumption,” said Jessica Hinds, director with Fitch, in a release.
As a result, Fitch is forecasting that consumer spending growth will slow to 1.1% in 2025 from 1.9% in 2024.
Fitch also reported that real household disposable income was up 3.9% year over year in the second quarter, and that the household savings rate climbed to 7.2% in the quarter, “well above the 2015–2019 average of 2.2%.”
While households are building savings, “these have largely accrued to the wealthiest households so are unlikely to boost consumption meaningfully,” it said.