The consumer spending growth decelerated to 0.2 per cent quarter-over-quarter (QoQ) in Q1 2025, after a strong second half (H2) of 2024. An increase in semi-durable goods was partly offset by a fall in durable goods spending while services stagnated, according to a report by Fitch Ratings’ titled 'Canada Consumer Monitor: 3Q25'.
The slower population growth will weigh on total spending through 2026. Fitch forecasts consumer spending growth to slow to 2 per cent in 2025 and 0.7 per cent in 2026.
The labour market conditions are deteriorating, particularly for export-oriented sectors, with business surveys and jobs data showing falling employment and reduced hiring intentions.
Although nominal disposable income grew by 7.2 per cent year-over-year (YoY) in Q1 FY25, real income growth and wage gains are set to slow further.
The household savings rate remains elevated at 5.7 per cent, but savings are concentrated among higher earners, limiting any potential boost to consumption. The high household debt and rising arrears, especially for unsecured credit, add to consumer headwinds. Mortgage debt and debt servicing costs remain historically high, and consumer confidence is volatile amid uncertainty over US trade policy.
Fitch expects the US effective tariff rate on Canadian exports to rise to 10 per cent in 2025, further dampening sentiment and economic activity.
The headline inflation has fallen below 2 per cent due to policy changes, but underlying inflation remains near 3 per cent. The Bank of Canada is expected to cut rates to 2.25 per cent by year-end, but risks remain skewed towards fewer cuts if inflation remains elevated.
ALCHEMPro News Desk (SG)
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