Debt-laden Canadian consumers more sensitive to interest rates, economist says
Canada’s economy is projected to grow just 0.9 per cent this year, well below the estimated 2.3 per cent growth in the U.S., according to a Bloomberg survey of economists. Canadian consumers are more sensitive to interest rates — they have more debt than U.S. households, on average, and mortgage rates are reset more frequently.
That’s why rate cuts are a big deal for Canada, Orlando said in an interview on BNN Bloomberg Television.
“We’re going to be able to have less of our disposable income go into mortgage payments,” he said. “That, in effect, will be able to close a little bit of this gap between Canada and the United States because we have just been suffering under the weight of these high rates for so long.”
“We had so much uncertainty in Canada — now we’re getting more certainty,” he said. Toronto-Dominion economists expect the Bank of Canada to cut its policy rate to 2.25 per cent by the start of 2026, he added.
The Fed has yet to start cutting rates, and TD predicts the first cut to come in December. Unlike Canada, the U.S. hasn’t had “any growth sacrifice” from higher interest rates, Orlando said.
“They spent a decade deleveraging after the global financial crisis,” Orlando said. “American consumers are in such (a) better position going into the high rate environment than Canadians were.” And the availability of 30-year mortgage rates in the U.S. is an additional buffer to rising rates, compared with Canada’s shorter terms, which are typically a maximum of five years.
—With assistance from Erik Hertzberg.