A tepid labour market and slower population growth will translate into weaker consumer demand in 2026, Fitch Ratings says.
In a new report, the rating agency said that while it expects Canada to avoid a recession this year, economic growth will be weak in the second half and in 2026.
With the jobless rate sitting at 7.1%, and employment vacancies declining, the labour market remains weak.
“Population growth has not slowed as much as government plans implied, keeping labour supply above demand,” it noted.
At the same time, wage growth has “slowed sharply this year,” it said — and, evidence from recent business surveys indicates that wages will “stay lacklustre” in the year ahead, it added.
Against that backdrop, “the outlook for consumer spending remains weak and more leveraged and lower-income borrowers are likely to come under strain,” Fitch said.
The rating agency also noted that, with a large chunk of mortgages set to reprice in the year ahead, “a significant minority of Canadian households have yet to fully adjust to higher rates.”
“Higher mortgage payments could lift delinquencies in lower-priority loans, such as credit cards,” it said.
Yet, at the same time, the resumption of monetary easing by the Bank of Canada will help relieve some of the pressure on consumers, it added.