According to a report from the Royal Bank of Canada, the net worth of Canadians is falling at the fastest rate in decades as rising interest rates and weakening financial and housing markets weigh on consumers.
A report released Wednesday found that Canadians have gained a total of $3.9 trillion in net wealth from the pandemic amid higher home values.
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Since then, an estimated $900 billion has been lost as a result of higher rates and the collapse of the housing and financial markets, the report said.
RBC economist Carrie Freestone said in an email to BNN Bloomberg that the latest decline was “the largest quarterly decline in net worth on record” and that “we expect the overall decline in net worth to be the largest decline yet.” During the decades of the early 1990s.”
“We expect this net profit to fall below the 41% ($1.6 trillion) mark,” Freestone said in a report.
“While this still won’t recover all of our pandemic gains, it will create a negative ‘wealth effect’ that will affect consumer spending even as labor markets soften.”
CUT COSTS TO DIVERSIFY THE ECONOMY
A significant decline in the net worth of Canadians could have a significant impact on the economy, the report said.
“A sharp decline in net wealth, combined with rising prices and higher interest rates, will reduce household spending by about $15 billion in 2023,” Freestone said.
“It’s one of the factors that will push Canada into recession early next year.”
Freestone said that while discretionary spending in areas such as home improvements and repairs have caused spending to rise during the pandemic, Canadians will now have to prioritize necessities such as food, gas and debt as rates continue to rise.
“We estimate that households will soon have to allocate 15 percent of their take-home pay to debt service alone, half of which is related to mortgage costs,” he said.
He said discretionary items such as furniture have started to decline.
“As this recession deepens, it will weigh heavily on businesses, particularly the manufacturing sector,” Freestone said.