With a recession on the horizon, and immigration in retreat, consumer spending is expected to slow sharply in the year ahead, Fitch Ratings says.
In a new report, the rating agency said that recent strong growth in Canadian consumer spending is set to come to an end in 2025, as the fallout from the trade war weighs on the economy, and cools the labour market — alongside a planned slowdown in population growth.
“Due to the impact of U.S. tariffs, we forecast a recession, with Canadian GDP declining for three quarters from [the second quarter], with annual average growth in 2025 of just 0.1%,” it said.
The disruption of trade with the U.S. will weigh on exports, but will also have an indirect impact on the Canadian economy as U.S. growth slows as a result of the tariffs, Fitch said. This will also cool the job market, with the unemployment rate now projected to rise above the 8% mark.
At the same time, the economic tailwind that Canada has enjoyed from strong population growth is also expected to ease in the months ahead, it noted.
“The boost to consumer spending growth from a surging population is set to fade through 2026 due to the impact of policy changes that restrict immigration,” it said.
Against this backdrop, the report said that household debt levels are a “key vulnerability for the household sector.”
Already, signs of household financial stress have emerged, it noted — with credit card delinquencies rising to 102 basis points at the end of 2024, its highest level since 2015.