After the pandemic hit in 2020, some business owners and households were hard hit financially as a result of lockdown measures. But at the same time, many Canadians saw their bank accounts grow because of their reduced spending.
Those savings ballooned to over $300 billion and became so large that economists expected there would be a big boost to the economy when all that money was eventually spent.
But today, that sizeable stimulus still hasn’t happened. Experts aren’t sure exactly why.
The savings did help the economy, but not nearly as much as envisioned, and the bulk of the money is still sitting in bank accounts.
To this day, total household savings are still about $350 billion more compared to before the pandemic began, according to Statistics Canada. Lower and middle income households spent much of what they saved during the pandemic, while higher-income households have actually saved up more money, experts say.
That amount has stayed relatively consistent over the last year or two with little indication of a big spending splurge to come.
“There’s still a lot of excess savings that’s been accumulated during the pandemic that is still in the system. We haven’t seen a drawdown of that,” said Charles St-Arnaud, an economist with Alberta Central credit union. “The question at this moment is why?”
As economists dive into this financial data, what’s apparent is not only the disparity between income levels in the country, but also a trend of how the overall amount of pandemic savings in Canada remains quite large, while the savings stockpile has nearly all evaporated in the U.S.
There’s a lot of money that could be spent and benefit the economy, but that’s not happening, says Charles St-Arnaud, chief economist with Alberta Central. (Justin Pennell/CBC)
“The question is, when does that richer cohort decide to use it?” said St-Arnaud. “There doesn’t seem to be an inclination to increase consumption.”
As a result, the massive savings stockpile can’t be counted on to help the country avoid a possible recession this year. There’s also no cushion for lower-income households that continue to feel the financial pain of a higher cost of living.
No shortage of savings
The pandemic didn’t bring financial gain for everyone, especially for those who lost their jobs and businesses or racked up debt to stay afloat. Not everyone had extra money in the bank following a few years of restrictions — but many did.
In 2020, the average Canadian saved more than $5,000, for a total of $212 billion, according to Statistics Canada. Some people spent the money on travel and other purchases, while others paid down debt, made a down payment on a property, or started a renovation project.
Of the roughly $350 billion in savings, some of the money is no longer available because people used it to pay down debt or a mortgage. Using Statistics Canada data, economists say that leaves about $230 billion sitting in bank accounts, term deposits and other investments.
Rental units are pictured in Toronto on Jan. 12, 2024. The average asking price for rent in Canada reached $2,196 in January, a 10 per cent increase from this time last year — marking another record high amid a deepening rental crisis. (Evan Mitsui/CBC)
The initial boost of savings was spread relatively evenly across different age groups and income levels, St-Arnaud said.
But that’s now changed. The majority of the savings now belongs to higher-income Canadians, while lower- and middle-class households have used up their pandemic savings or are making withdrawals because experts say they likely need it to keep up with inflation.
Living expenses — from food and clothing to rent and utilities — are soaring throughout Canada.
“Earlier we may have, I don’t want to say overstated the importance of these savings, but we thought that these may insulate people from a broader pullback in spending,” said Carrie Freestone, an economist with RBC.
She points to data from the fall of 2023 showing how lower- and middle-income Canadians struggled to save money, and that’s one reason why consumer spending is falling. Without the cushion of savings, said Freestone, those households will feel more of a squeeze from inflation.
“We’re still going to see a bit of a pullback in consumption at the beginning of this year until the Bank of Canada starts cutting rates,” she said.
Economists Charles St-Arnaud and Carrie Freestone discuss how much Canadians have saved since the pandemic began and why that money largely hasn’t been spent.
Stateside spending
In the U.S., Americans also saved up plenty of money during the pandemic. Still, as restrictions eased, they opened up their wallets and spent it. That flood of cash, in the trillions of dollars, helped stimulate the economy, even as interest rates rose and price tags climbed. Overall, the American economy has performed much better than experts had predicted.
Calculations vary about how much of the pandemic savings is left in the U.S., but the majority of Americans don’t have any of the money left to spend, according to the U.S. Federal Reserve.
“The majority of the population doesn’t have on average much of that savings leftover, if anything,” said Freestone. “It’s just a totally different trend that’s playing out” compared to Canada, she said.
There are several theories for why Canadians, on average, have held onto the savings, while Americans were much more inclined to spend. For starters, Canadian government support during the pandemic lasted longer compared to the U.S.
Conversely, lockdown measures eased much sooner in most states, so there were more opportunities to spend.
On average, Canadians carry much higher debt than Americans, so they may be more resistant to spending, experts say.
Among other suggestions, there’s also the different ways that mortgages are structured. In the U.S., the majority of homeowners sign a 30-year mortgage with a locked-in rate. Canadians, on the other hand, typically renew their mortgages every five years.
“A lot of mortgages are coming up for renewal over the next couple years that are going to renew into higher interest rates,” said Karen Routledge, an investment advisor and financial planner with Wellington-Altus Private Wealth.
Wealthier Canadians less inclined to cash in savings
Besides holding on to savings to pay down a mortgage, Routledge said there are many other reasons why some of her clients are holding on to savings, such as saving up for a bigger expense or simply wanting to take advantage of higher returns on term deposits and GICs.
“Interest rates on cash are better than they’ve ever been in pretty much the last 20 years,” she said. “They’re actually getting paid for it.”
Wealthier Canadians don’t need to use the savings to keep up with routine expenses, so some experts say they are less inclined to spend it.
“So, it just stays on the sideline and it might stay indefinitely,” said St-Arnaud, the economist with Alberta Central.
Economic growth has stuttered for much of the last year as a result of the Bank of Canada’s rate hikes in 2022. Wage growth is helping some households to keep up with inflation, while population growth is also helping keep the economy from falling into a recession.
OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
