My Mortgage Blog

Canadians aren’t taking any chances when it comes to their financial future as they prepare for the possibility of a forthcoming recession.  

According to data from TransUnion Canada, over a third of Canadians are bolstering their savings as a precautionary measure. Younger cohorts, including Gen Z and Millennials, are even more vigilant, with 50% and 39%, respectively, bracing for a potential economic downturn.

That’s despite the Bank of Canada revising its GDP growth forecasts upward in its recently released Monetary Policy Report. While it expects growth to moderate to an average of 1% in the second half of 2023 and first half of 2024, it doesn’t foresee an economic contraction.

But Canadians aren’t convinced, according to TransUnion’s Consumer Pulse survey. Interestingly, 36% of respondents believe that Canada is currently experiencing a recession, whereas only 27% share the Bank of Canada's optimistic outlook that the country will avoid a recession by the year's end.

However, even if the country skirts a technical recession, surging interest rates and overall cost of living increases are undeniably taking a toll on consumers' financial well-being.

"While there is a mixed level of confidence in Canadians’ financial outlook, macroeconomic pressures remain top-of-mind for many,” said Matt Fabian, director of financial services research and consulting at TransUnion Canada. "Concerns around inflation, rising interest rates, housing affordability, and the perceived threat of a potential recession are affecting how Canadians are managing their household finances.”

Other measures consumers are taking

Aside from increasing their savings, consumers are taking other measures to bolster their financial stability. The survey revealed that 17% of respondents are paying down their debts more aggressively, while 15% are cutting back on their retirement savings. Another 13% said they are tapping into available credit more frequently.

More than half (54%) said they have cut back on discretionary spending. Specifically, over a quarter (26%) have cancelled subscriptions or memberships and 21% have cancelled or reduced digital services, TransUnion said.

Overall, only a minority of respondents (42%) said they are optimistic about their financial outlook over the coming year, and almost a third (32%) expect to face difficulty paying their current bills and loans in full.

Early signs of payment difficulties

There are already early signs of some consumers facing difficulty with their payments, with Equifax Canada reporting a 17% rise in non-mortgage delinquencies in the fourth quarter of 2022.

"We are starting to see increases in missed payments on credit cards and auto loans, particularly for lower-income consumers,” said Rebecca Oakes, Vice-President of Advanced Analytics at Equifax Canada. "The ability to manage finances through a sustained period of high inflation with rising living costs is unfortunately proving too much for some individuals.”

However, consumers with mortgages generally have options available to them in the form of a refinance or access to home equity lines of credit. This is where it would be beneficial to speak with a mortgage broker who can explore the various options available to borrowers based on their unique financial situation.

If  financial stresses are increasing, mortgage borrowers are encouraged to reach out for help early before they start missing payments.