(Montreal) Canadian households’ financial outlook is getting bleaker as real wage inflation erodes and higher interest rates limit economic growth, says a new study by Desjardins.
Posted at 3:52 p.m.
The study released on Wednesday indicated that the coming months could be bumpy to family budgets as cracks begin to appear in the recovery from the pandemic.
The document adds that the value of many assets will be at risk, while liabilities will remain, which will reduce the net wealth of families, which may harm the development of their net wealth.
“At the end of this extraordinary economic and financial cycle, the vast wealth that Canadian households have accumulated will likely have diminished, at least in real terms,” the study says.
Despite everything, the extent of this reduction remains uncertain and “will depend to a large extent on the success with which the Bank of Canada ensures a smooth landing of the economy,” said Desjardins.
At the same time, the gradual elimination of government assistance programs could harm the budget of some families, while the savings rate should gradually decrease as costs rise, the document continues.
According to Desjardins, Canadians with lower incomes and higher liabilities will suffer from this situation before others. Higher debt levels and higher interest rates are expected to lead to more consumer bankruptcies.
However, the study notes that Canadians should still be able to count on job growth and that income growth should remain strong.
“Fortunately, revenue growth should remain healthy despite decelerating inflation,” the study said.
A study suggests that higher wages and a return to more normal levels of inflation will help reduce consumer defaults and bankruptcies.
Meanwhile, consumer spending and consumption growth are expected to slow in the coming months after a solid start to 2022.
The slowdown is attributed to the stabilization of spending on services after the reopening of the economy and the effect of higher prices on the consumption of goods.
In addition, the cost of debt servicing – which has fallen during the pandemic – is expected to rise gradually as interest rates rise, the study warns.
