CashNews.co
What’s going on here?
Despite three interest rate cuts, Canadian consumers feel the financial squeeze more intensely than Americans, who haven’t seen any from the Federal Reserve.
What does this mean?
Canadian mortgages often adjust every 4-5 years or are variable, unlike America’s 30-year fixed-rate versions. This means many Canadians face higher mortgage payments even with recent rate cuts. Additionally, Canadian rents have surged past inflationdriven by population growth led by immigrants. This creates a perfect storm of financial stress, with Canadians dedicating about 15% of their disposable income to debt, compared to 10% for Americans. Analysts expect this strain to continue into 2025 and 2026, highlighting ongoing challenges.
Why should I care?
For markets: Financial stress could dampen spending.
Canadian household debt now exceeds the country’s GDP, and consumers are saving more to manage debt, with a savings rate of 7.2%. This contrasts with the US, where the savings rate dropped to 2.9% in July. As Canadians tighten their belts, reduced consumer spending could impact market dynamics and investor strategies.
The bigger picture: Economic shifts cross borders.
Canada’s inflation-adjusted per person expenditure has declined by 2% since 2022, while the US experienced 2.7% growth in July 2024. As Canada deals with significant mortgage renewals totaling C$400 billion in 2025, continued financial stress is expected. Observers are also watching the Federal Reserve’s upcoming rate decision, expected to cut its benchmark rate, influencing both countries’ economic trajectories.