But along with disruption and income loss there will be some positive outcomes from the crisis according to bank economist
Whatever the eventual economic impact and recovery, Canadian household finances will face a “serious test” in 2020 and a “lasting mark” from the COVID-19 pandemic.
That’s the assessment of TD Economics’ Ksenia Bushmeneva who says that household finances were already stretched coming into this year.
While the government help such as income replacement programs will only provide short term relief, Bushmeneva notes that debt servicing costs are set to fall “precipitously” although the debt-to-income ratio may rise for a time due to lost disposable income.
Household wealth is also set to take a hit but this will be cushioned to some extent by gains built up in over the past decade. These gains, driven by increased home prices and equities, have boosted consumption rather than the savings rate, which stalled at around 2% in 2016-2018.
However, lower home prices, volatile equities, and the collapse of oil prices, all take their toll on household wealth.
Costs such as higher down payments required for home purchases due to the B-20 mortgage guidelines and debt-servicing have also affected households’ ability – or willingness – to save.
But with spending now constrained by economic uncertainty, there should be a growth in the savings rate while debt growth will likely slow in the short-term due to weak sales of homes and cars for example.
Rising unemployment
Household finance pressure will be exacerbated by rising unemployment which Bushmeneva says is set to remain elevated until the second half of 2021.
Overall, the report concludes that despite income and wealth decline, government support and lower debt servicing costs should help preserve most of the wealth held by the average household.
Longer term, the savings rate should have increased but households will also be more leveraged which is likely to weigh on consumer spending.
Read our newest report: Impact of the Pandemic on Key Canadian Household Financial Indicators #CdnEcon #Financial
— Beata Caranci (@TD_Economics) May 14, 2020
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