How much debt have Canadians taken on to survive during COVID?
And with the end of the pandemic in sight — sort of — what will happen next?
According to Statistics Canada, things were not ideal even before COVID, with 30% of Canadians believing they were over-indebted in 2019. Then came the pandemic.
Insolvency filings went up at the beginning of the year, but 2020 finished with record lows, despite lockdowns and layoffs. Debt was deferred.
Going into the pandemic, Canada’s debt-to-income ratio was 180.4%. The average consumer owed almost $30,000 in non-mortgage debt.
Insolvencies were rising and had been since the end of 2018.
When COVID hit, the federal government held off financial chaos with CERB and wage subsidies, income supports that helped an estimated 50% of adult Canadians.
People deferred payments on everything from mortgages and credit cards to car loans and commercial rents.
With courts closed and debt collectors sidelined by COVID, everything was put on hold.
Insolvencies reached a 20-year low. (Alas, Statistics Canada notes that non-mortgage loans have increased steadily since May of 2020 and will soon be back to pre-pandemic levels.)
But deferrals are coming to an end, and government supports will not last forever. The economy is not predicted to be back in full swing until late this year or 2022; in the meantime, insolvencies will start to rise.
“Insolvencies will return as the economy recovers. It seems counter-intuitive to many, but if you don’t have an income or assets that can be seized by creditors, there is no need to file insolvency,” said Hoyes in his 2020 summary.
“Until economic growth is no longer driven primarily by consumer spending paid for with debt, until more Canadians can stop living paycheque to paycheque and using credit to survive, consumer insolvencies will inevitably return,” Hoyes added.
Asked to do a little crystal-ball gazing for the future, Hoyes said there are two schools of thought at the moment.
One is that with the vaccine and most people inoculated by Labour Day, we’ll quickly get back to normal. The pandemic will prove to have been a temporary blip.
“I do not subscribe to that theory,” said Hoyes.
“Yes, with the vaccine things will eventually get back to normal, but the world has fundamentally changed. Your favourite restaurant? It’s not reopening. Maybe not that nail salon or small fitness studio either. Others may replace them, but not to the same degree,” he said.
For some workers, then, change will be huge.
“For a 60-year-old chef, life is not going back to normal. That chef, if he used credit cards to survive the last year, might be one of my clients,” Hoyes said.
On the other hand, said Hoyes, if that chef retires, nobody can garnishee his wages because he won’t have any.
“People file for bankruptcy or do a proposal to get protection from their creditors. They do so because they’re afraid their wages will be garnisheed or they’ll be sued, or they’ll lose their house, ” Hoyes said.
With no wages and no house (i.e. nothing to lose) you likely wouldn’t file. And creditors have to take action within two years of when payments stopped.
“And the courts are still mostly closed and collection agents are still working from home. A lot of the big banks may decide, ‘What’s the point?’
“There will be fewer clients in my line of work,” Hoyes said.
As the economy recovers, Hoyes said it’ll be tough on people in their 50s and 60s who are not quite ready for retirement.
And tough on young people just finishing university, he said. A lot of experience will be lost in the way of hands-on learning and mentoring because of the way the world has changed.
People who’ve been deferring debt have more to think about and are potentially more at risk, said Hoyes.
Certainly, many Canadians, mostly middle income, will feel the debt impact of COVID-19 for years to come. Financially, “the guy in the middle will suffer most.That chef who used to earn $3000 a month is now getting 1800 on EI.”
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
