Household financial stress rising

The financial pressure on households from deteriorating economic conditions is starting to show up in the performance of Canadian asset-backed securities (ABS), Fitch Ratings says.

In a new report, the rating agency said that the performance of Canadian credit card and auto loan ABS is weakening amid an economic slowdown due to the growing trade conflict with the U.S.

Credit card balances have risen amid slowing payment rates, it noted, “as households rely upon credit card borrowing to manage higher expenses and other debts.”

Additionally, credit card, “charge-offs are increasing and now exceed pre-pandemic levels,” Fitch reported — while Canadian auto loan ABS delinquencies and losses, “continue to rise toward pre-pandemic levels.”

Amid the rising economic and financial pressures, Fitch is forecasting a “mild recession” for Canada in 2025, and rising unemployment.

“Inflation and a cooling labour market will slow real income growth, while higher U.S. tariffs and slower population growth will weigh on consumer spending. Household liabilities remain high despite prior policy easing by the Bank of Canada,” Fitch said.

“Highly leveraged and lower-income households with minimal financial buffers remain under pressure,” it added.

Against this backdrop, the rating agency has a “deteriorating” outlook for Canadian ABS as risk grows.

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.