Amid an array of headwinds, including slower wage growth and ongoing trade turmoil, Fitch Ratings expects Canada’s economic growth to slow this year.
In a report published Wednesday, the rating agency forecast 1.1% growth this year, down from an estimated 1.6% for 2025.
The softer outlook reflects the fact that consumer spending growth is expected to be weak this year — it’s forecast to rise by just 0.9%, down from 2.1% in 2025 — as trade uncertainty lingers, population growth has halted and wages stagnate.
Fitch said that while it’s forecasting that unemployment has peaked, that largely reflects reduced immigration, rather than growing demand for workers.
Indeed, “the number of potential workers far exceeds total demand for jobs,” it said, estimating that the crop of surplus workers is around one million.
Against that backdrop, Fitch expects wage growth to slow, “putting more leveraged and lower-income borrowers under strain.”
On the trade front, Fitch said, “Canadian exporters have adapted well to U.S. trade policy changes so far.”
And, while it generally expects trade policy to be less volatile this year, “the upcoming CUSMA/USMCA review in July is a major source of uncertainty for Canada’s economy that could weigh on business confidence and investment, as well as dampening companies’ hiring plans,” it said.
Lower interest rates are driving reduced borrowing costs, “which will be helpful for highly indebted Canadian households,” it noted — but, even so, debt costs are expected to remain above their pre-pandemic levels.
As a result, Fitch expects the performance of Canadian credit card asset-backed securities to “weaken in the near term due to a softer economy, CUSMA review uncertainty and elevated household debt.”