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.

While home prices have weakened in recent quarters, renovation costs increased 0.9% in the second quarter of 2025 after a 0.3% increase in the first quarter, Statistics Canada said Friday.

Last month, the national statistical agency reported that the New Housing Price Index fell 0.2% nationwide in June. Prices were down in 12 of the 27 metropolitan areas tracked by the index, led by a 0.9% drop in Sudbury, Ont., and a 0.8% decline in Calgary.

Additionally, both the Canadian Real Estate Association and Fitch downgraded their housing forecast this summer.

Residential renovation prices were up in all 15 census metropolitan areas measured, with Quebec leading at 3%, followed by Regina and Saskatoon (both 2.2%). Toronto saw the smallest quarterly increase at 0.3%.

Among provinces, Saskatchewan recorded the largest quarterly cost increase at 2.2%, followed by Newfoundland and Labrador (1.8%). Saskatchewan also posted the largest year-over-year growth at 4.8%, followed by Alberta (4.1%) and Quebec (3.5%).

U.S. tariffs, including a 25% tariff on steel, aluminum, iron, appliances and textiles, contributed to renovation cost increases across the country. Projects such as installing solar panels, replacing heat pumps, installing new furnaces and replacing carpet saw some of the largest increases. Other projects, such as windows and doors and flooring, saw smaller increases.

The Canadian economy shed some 41,000 jobs in July as young workers and the private sector bore the brunt of the losses, Statistics Canada said Friday.

The unemployment rate held steady at 6.9% as the number of job seekers was roughly unchanged from June.

The economy lost 51,000 full-time positions in July, and StatCan said the bulk of the losses were in the private sector.

Young workers in particular continue to struggle in a tough summer jobs market.

Youth aged 15 to 24 lost 34,000 positions last month while the employment rate for the age group fell to 53.6% — the lowest level since November 1998, outside the Covid pandemic.

July’s drop in jobs partially offsets an unexpected gain of 83,000 positions in June.

StatCan said employment was down across several industries in July.

The information, culture and recreation sector led job losses with 29,000 positions shed, followed by construction, which lost 22,000 roles.

Offsetting those losses was an increase of 26,000 jobs in transportation and warehousing, marking the sector’s first job gain since January. Parts of this industry are affected by U.S. demand for exports and have faced disruption from the United States’ tariff campaign in recent months.

Manufacturing, another tariff-sensitive industry, posted its second consecutive month of modest job gains with 5,300 positions added in July. On a year-over-year basis, employment in manufacturing is still down by 9,400 jobs.

StatCan said the layoff rate — the proportion of people employed in June but laid off in July — was virtually unchanged at 1.1% from the same month a year ago despite the uncertainty tied to trade and U.S. tariffs.

But many of those looking for work are struggling to land a job, the agency noted.

Of the 1.6 million people who were jobless in July, 23.8% were in long-term unemployment, meaning they’ve been on the job hunt for 27 weeks or more. StatCan said that’s the highest share of long-term unemployment since February 1998, again excluding the pandemic.

Average hourly wages meanwhile rose 3.3% on an annual basis in July, up a tick from June.

Household income growth slowed sharply in the first quarter among Organization for Economic Cooperation and Development (OECD) countries, according to new data.

The Paris-based group reported that both income and GDP growth slowed in the first three months of 2025, with real household income and real GDP rising by just 0.1% (per capita) in the first quarter — a slowdown from 0.6% growth in incomes and 0.4% growth in GDP recorded in the previous quarter.

Additionally, the OECD noted that while about half the countries it tracks recorded a gain in household incomes, the other half saw incomes fall.

In the G7, most countries recorded an increase in real household income in the first quarter, it noted — led by a 1% jump in Italy — but the U.K. and Germany both saw incomes decline.

Canada experienced a modest 0.1% gain in household income, trailing a 0.4% increase in real GDP, the OECD noted.

Whereas in the U.S., incomes were up 0.5%, despite a 0.3% contraction in real GDP for the quarter, it said.

Outside of the G7, Chile saw the strongest growth in household incomes, the OECD reported, with real per capita income rising 3.1% in the quarter, “as consumer price inflation fell and real GDP per capita increased (0.5%).”

Greater Toronto Area home sales rose 10.9% in July compared with a year earlier as 6,100 properties changed hands, the most activity recorded in the month since 2021.

The Toronto Regional Real Estate Board said sales were up 13% from June on a seasonally adjusted month-over-month basis, as improved affordability driven by lower prices and borrowing costs “is starting to translate into increased home sales.”

The average selling price decreased 5.5% compared with a year earlier to $1,051,719, and the composite benchmark price, meant to represent the typical home, was down 5.4% year over year.

“More relief is required, particularly where borrowing costs are concerned, but it’s clear that a growing number of households are finding affordable options for home ownership,” said TRREB president Elechia Barry-Sproule in a press release.

July marked a significant turnaround for the Greater Toronto market after months of consecutive year-over-year declines in activity. Industry watchers have noted widespread hesitation among potential buyers due to economic uncertainty associated with the Canada-U.S. trade dispute.

April saw a 23% annual decline in the number of homes changing hands, followed by a 13% drop in May and roughly a 2% decrease in June.

TRREB chief information officer Jason Mercer said recent data suggests the Canadian economy is still “treading water in the face of trade uncertainty with the United States.”

“A key way to mitigate the impact of trade uncertainty is to promote growth in the domestic economy. The housing sector can be a catalyst for growth, with most spin-off expenditures accruing to regional economies,” he said in a press release.

“Further interest rate cuts would spur home sales and see more spin-off expenditures, positively impacting the economy and job growth.”

Last week, the Bank of Canada left its policy rate unchanged for the third time in a row, but said future cuts may be warranted as U.S. tariffs persist. The central bank’s policy rate remains at 2.75%.

Governor Tiff Macklem said the economy has shown “some resilience” amid trade uncertainty, and that underlying inflation is proving stubborn.

Meanwhile, TRREB said 17,613 properties were newly listed in the GTA last month, up 5.7% compared with July 2024.

The number of active listings reached 30,215 last month, up 26.2% from last year’s inventory of 23,936 homes.

In the City of Toronto, there were 2,205 sales last month, an 11% increase from July 2024. Throughout the rest of the GTA, home sales were up 10.9% to 3,895.

All property types throughout the region saw more sales overall in July compared with a year ago.

The largest increase was in the semi-detached segment, which was up 25.5%, followed by detached houses with an 11.3% increase.

There were 7.9% more townhouses sold and a 5.8% increase in the number of condos that changed hands.

Between a weaker job market, trade turmoil and a drop in population growth, Canadian consumer spending is set to slow in the months ahead, says Fitch Ratings.

In a new report, the rating agency reported that spending growth eased to just 0.2% on a quarter-over-quarter basis in the first quarter, as services spending stagnated and durable goods spending declined, partly offsetting an increase in non-durables spending.

For the full year, Fitch is forecasting consumer spending growth to slow to 2% this year — before dropping to just 0.7% in 2026: “Slower population growth will weigh on total spending through 2026.”

Fitch is also also expecting a softer labour market, and ongoing trade disruptions with the U.S. to weigh on consumer activity.

“Labour market conditions are deteriorating, particularly for export-oriented sectors, with business surveys and jobs data showing falling employment and reduced hiring intentions,” Fitch noted — adding that, “real income growth and wage gains are set to slow further,” too.

While the household savings rate is relatively strong at 5.7%, the rating agency said, “savings are concentrated among higher earners, limiting any potential boost to consumption.”

Household credit conditions, with high debt levels and increasing arrears, will also constrain spending, it noted.

“Mortgage debt and debt servicing costs remain historically high, and consumer confidence is volatile amid uncertainty over U.S. trade policy,” it said.

Indeed, rising U.S. tariffs on Canadian exports are expected to weigh on sentiment and economic activity, Fitch said.

Against that backdrop, “We forecast a mild recession in 2025, with GDP declining for two quarters,” it noted.

And, while interest rates are expected to ease further, “risks remain skewed towards fewer cuts if inflation remains elevated,” it noted.

Vancouver-area home sales were down 2% in July compared with last year, as the city’s real estate board says it continues to believe the market is showing early signs of recovery.

Greater Vancouver Realtors said residential sales in the region totalled 2,286 last month, down from the 2,333 sales recorded in July 2024 and 13.9% below the 10-year seasonal average.

The board’s director of economics and data analytics Andrew Lis said the figures confirm that the market has turned a corner after months of slow activity spurred by the Canada-U.S. trade war.

“Although the Bank of Canada held the policy rate steady in July, this decision could help bolster sales activity by providing more certainty surrounding borrowing costs at a time where economic uncertainty lingers due to ongoing trade negotiations with the USA,” Lis said in a press release.

Year-over-year sales were down around 10% in June, roughly half of the decline recorded in May.

The composite benchmark price in July was $1,165,300, down 2.7% from a year earlier and 0.7% lower than June.

There were 5,642 newly listed properties on the market in July, a 0.8% increase from last year and 12.4% above the 10-year seasonal average.

Total active listings rose 19.8% year-over-year to 17,168, which was 40.2% above usual levels for the month.

“Although sales activity is now recovering, this healthy level of inventory is sufficient to keep home prices trending sideways over the short term as supply and demand remain relatively balanced,” said Lis.

“However, if the recovery in sales activity accelerates, these favourable conditions for home buyers may begin slowly slipping away, as inventory levels decline, and home sellers gain more bargaining power.”

Sales in the detached homes category were down 4.1% year-over-year to 660 last month, while 2.9% fewer apartments changed hands at 1,158.

There were 459 attached home sales, a 5% increase compared with July 2024.

DesRosiers Automotive Consultants Inc. says the auto market remained resilient last month despite trade disruptions in the industry.

The firm estimates 172,000 vehicles were sold in July, up 6.9% year-over-year.

DesRosiers says there are caveats: July 2024 was a weak comparable and many dealerships are still selling their pre-tariff inventory.

However, it says the month was still solid, and the best performing July since 2019, when sales were at 174,000 units.

The auto industry continues to face uncertainty from ongoing trade negotiations, as some automakers have raised their estimates for tariff costs.

Auto manufacturers are hoping for a carve-out from U.S President Donald Trump’s tariffs. 

In June, Canada’s merchandise imports increased 1.4% and exports rose 0.9%, widening the merchandise trade deficit from $5.5 billion in May to $5.9 billion, Statistics Canada said Tuesday.

“Canada’s trade figures came in line with expectations for June. While trade flows have recovered a touch from the spring, normalization is unlikely until the Canada-U.S. relationship stabilizes,” according to a BMO Economics report.

The merchandise import increase was due to a one-time high-value shipment of an industrial machine for an oil project off the coast of Newfoundland. If this purchase were excluded, total imports would be down 1.9%.

Imports of motor vehicles and parts were also up 2.9% in June. Imports of passenger cars and light trucks increased the most (6.9%), primarily from Mexico. This was partially offset by lower imports of motor vehicle engines and motor vehicle parts (-4.8%) amid declining vehicle production in Canada.

The merchandise export increase was driven by farm, fishing and intermediate food products (6.7%) and energy products (3.8%), partially offset by lower exports of metal and non-metallic mineral products (-3.4%). Total exports were up 2.2% in the first half of 2025 compared with the same period last year.

Exports to the United States increased 3.1% in June but were 12.5% lower compared with June 2024. After three consecutive monthly decreases, imports from the U.S. were up 2.6% in June, again driven by the offshore oil project.

Canada’s merchandise trade surplus with the United States widened from $3.6 billion in May to $3.9 billion in June.

Canadian exports to countries other than the U.S. reached a record high in May but fell 4.1% in June, the first decline since February. Still, exports to destinations other than the U.S. were up 14.7% in June 2025. Imports from countries other than the U.S. fell 0.3% in June. Canada’s trade deficit with countries other than the U.S. widened from $9.1 billion in May to $9.8 billion in June.

At the same time, Canada’s monthly international trade in services deficit narrowed from $0.9 billion in May to $0.7 billion in June. Imports of services edged down 0.2% to $18.7 billion, and exports of services rose 1% to $18 billion, Statistics Canada said.

Imports of travel services fell 0.8% to $4.5 billion in June, while imports of transportation services increased 1.1% to $3.2 billion. Imports of commercial services fell 0.3% to $10.8 billion, led by a decrease in financial services.

Exports of commercial services increased 1.2% to $10.8 billion in June, mostly due to an increase in non-financial commercial services. Exports of travel services also increased 1.2%, reaching $5.2 billion.

Altogether, Canada’s overall trade deficit was little changed at $6.5 billion in June, BMO Economics said.

“Some resilience” — those were the two words Bank of Canada governor Tiff Macklem used last week to describe how the Canadian economy is holding up underthe weight of U.S. tariffs.

Just a few days later, U.S. President Donald Trump added 35% tariffs on Canadian goods to a running tally that includes hefty duties on steel, aluminum, automobiles and, more recently, semi-finished copper.

With tariffs piling up over the past few months, economists say Canada’s economy is starting to show cracks — but few signs of collapse.

TD Bank economist Marc Ercolao conceded it’s a “bit of surprise” to see the economy holding up against a massive disruption from Canada’s largest trading partner.

“Many months ago, ourselves — as well as other economic forecasters — had an outlook for a much weaker Canadian economy. Obviously, that isn’t manifesting now,” he said in an interview.

“We are avoiding the worst-case scenario.”

What are tariffs doing to the economy?

On Thursday, Statistics Canada gave a glimpse at how the economy wrapped up the second quarter of the year when many of those tariffs came into full effect.

While the agency sees a couple of small contractions in real gross domestic product by industry in April and May, its flash estimates show the economy rebounding somewhat in June.

If those early readings pan out, StatCan said that would be good enough for flat growth overall on the quarter.

Some of those results are distorted by volatility — businesses rushing to get ahead of tariffs boosted activity in the first quarter, and that’s giving way to weakness in the second quarter, for example.

It’s still hard to pinpoint exact impacts tied to tariffs, Ercolao said, but a broad trend is emerging.

“What we can say over the last six months or so is that economic activity is somewhat flatlining,” he said.

Services sectors are holding up relatively well, but Ercolao said export-heavy industries such as manufacturing and transportation are bearing the brunt of the impact.

In an attempt to shore up some of that weakness, the federal government has announced various programs to support tariff-affected workers and broader plans to accelerate defence and infrastructure spending.

Macklem noted during his press conference Wednesday that business and consumer confidence are still low, but have improved according to the central bank’s recent surveys.

And while some trade-exposed sectors have faced job losses and the unemployment has generally trended upward to nearly 7%, employers elsewhere in the economy continue to expand their payrolls.

“Consumption is still growing,” Macklem said. “It’s growing modestly. It’s certainly being restrained by the uncertainty caused by tariffs. But it is growing and we expect that to continue through the third and fourth quarters.”

Will Canada hit a recession?

Last week the Bank of Canada kept its policy interest rate unchanged at 2.75% in a third consecutive decision.

If the central bank were panicked about the Canadian economy’s ability to withstand U.S. tariffs, Ercolao argued it would likely have lowered that rate.

The past week’s GDP readings were good enough for BMO to raise its outlook for the third quarter into positive territory. Forecasters at the bank now expect Canada will avoid a technical recession this year.

BMO chief economist Doug Porter said in a note to clients Friday that Ottawa’s personal tax cut at the start of the month and robust demand for domestic travel amid the trade war will boost the economy this quarter, as will “the less-dire sentiment” around economic forecasts.

Some other forecasters continue to pencil a tariff-induced recession into their outlooks.

In the Bank of Canada’s monetary policy report released alongside the rate decision, it outlined one scenario for the economy assuming the tariff situation remains largely status quo.

Canada avoids a recession in that outcome. Growth in 2025 and 2026 remains overall positive, but half a percentage point lower than it would’ve been without the weight of tariffs.

Macklem told reporters that the Bank of Canada would expect the economy to keep growing even with today’s tariffs in place, “but it’ll be on a permanently lower path.”

“Unfortunately, the sad reality is that tariffs mean the economy is going to work less efficiently,” he said.

What about the new tariffs?

Porter said in his note that the actual impact of Trump’s new 35% tariff on Canada’s economy could be less than headline figure suggests.

Because of a carve-out for Canadian exports that are compliant with CUSMA, BMO sees the effective U.S. tariff rate at roughly 7% under the new duties, less than a percentage point higher than where it stood before Friday.

But with CUSMA up for renegotiation in 2026, Porter said that 35% tariff rate could loom as a “cudgel” over negotiations — taking full effect if the trade agreement expires without a new deal in place.

The Bank of Canada published a separate “escalation” scenario this week that would see the United States remove Canada’s CUSMA exemption as it ramps up global tariffs.

Real GDP would drop an extra 1.25% by 2027 in this more severe case; Porter said that this outcome would be “serious for sure, but far from disastrous.”

Ercolao said much of the tariff doom-and-gloom earlier in the year was tied to the speed at which those import duties would be imposed.

But the on-again, off-again nature of U.S. trade restrictions to date has given businesses time to adapt to the new way of doing business and constant delays in implementation, he said.

“If we go back to when Trump began his presidency, had he went 100% on his tariff plan right away, we probably would have seen a deep economic contraction just because it would have been so sudden,” Ercolao explained.

“Now we’ve been afforded that time to at least try to mitigate some of the negative impacts from what these tariffs were expected to do to the Canadian economy.”