(Montreal) The financial outlook for Canadian households is darkening, as inflation eats away at real wages and rising interest rates curb economic growth, says a new study by Desjardins.
Posted at 3:52 p.m.
The coming months could be bumpy for household budgets as cracks begin to appear in the pandemic recovery, the study released Wednesday noted.
The value of many assets will be at risk, while liabilities will remain, which will reduce the net worth of households, which could hurt the evolution of their net wealth, the document adds.
“At the end of this exceptional economic and financial cycle, the massive wealth accumulated by Canadian households will likely have diminished, at least in real terms,” the study says.
Despite everything, the extent of this reduction remains uncertain and “will largely depend on the success with which the Bank of Canada ensures a soft landing for the economy,” said Desjardins.
Meanwhile, the phasing out of government assistance programs could hurt the budget of some households, while the savings rate should gradually decline as costs rise, the document continues.
According to Desjardins, Canadians with lower incomes and larger liabilities will suffer from this situation before others. High debt levels and rising interest rates are expected to lead to more consumer insolvencies.
However, the study indicates that Canadians should still be able to count on job growth and income growth should remain robust.
“Fortunately, revenue growth should remain healthy despite slowing inflation,” the study said.
Higher wages and a return to more normal levels of inflation will help reduce consumer defaults and insolvency, research suggests.
Consumer spending and consumption growth, meanwhile, are expected to slow in the coming months after a strong start to 2022.
The slowdown is attributable both to a stabilization of spending on services after the economy reopened and to the effect of price increases on the consumption of goods.
In addition, the cost of servicing debt – which has fallen during the pandemic – is expected to gradually rise as interest rates rise, the study warns.