Despite ongoing trade-related uncertainty, Canada’s economic outlook is expected to improve this year, says Fitch Ratings.
In a report Thursday, the rating agency said that while Canada faced a technical recession earlier this year, more recent economic data indicates that the downturn will prove short lived.
For instance, data on employment and wages, which signalled a rebound in the second quarter, “points to a labour market slowly on the mend,” it said.
Consumer spending rose by 0.3% in the first quarter and represented a “relative bright spot,” Fitch said. The rating agency noted that consumers “prioritized essentials over discretionary items,” which is a trend that it expects to continue while fuel prices are elevated.
Indeed, high fuel prices remains a downside risk to the outlook, it noted — as does ongoing trade uncertainty with the U.S.
Against that backdrop, Fitch is maintaining its deteriorating outlook for Canadian credit card and auto loan asset-backed securities (ABS).
The performance of credit card ABS improved in the second quarter, it noted, but is “expected to remain pressured in [the third quarter], with delinquencies and charge-offs likely to rise modestly.”
Auto loan ABS delinquencies have also gradually increased, but remain in line with pre-pandemic levels, it said.
“Delinquencies in the broader market have shown early signs of stabilization, although rising consumer insolvencies, still above pre-pandemic levels, remain a key downside risk,” Fitch noted.