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Posthaste: One in six Canadians say they are likely to default on a major loan as rate hikes pinch Back to video

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Good Morning,

Every day more signs are appearing that Canadians, struggling with inflation and the steepest climb in borrowing costs in recent memory, are finding it hard to make ends meet.

In the latest edition of the Canadian Maru household outlook index out this morning, one in six Canadians said they are likely to default on making payments on a major loan or mortgage in the next 60 days. That’s up two percentage points from the month before and the highest level since Maru began tracking Canadians’ views on their personal finances and the economy in 2020.

Those are not the only “sobering numbers.” More Canadians (12 per cent) are saying they will likely declare bankruptcy, up three percentage points from last month.

The poll is just the latest indicator of stress in Canadian households as they try to cope with decades-high inflation and borrowing costs that have increased 4.25 percentage points in just under a year.

While most Canadians say they will be pinched if the Bank of Canada holds its interest rate at the current 15-year high, inflation was a bigger concern in a Nanos Research Group survey for Bloomberg News.

Nearly 85 per cent of those polled said they’re more worried about the elevated costs of everyday goods like food and gas than borrowing costs.

Another survey by Statistics Canada out yesterday, found that one third of Canadians (35 per cent) reported having difficulty making ends meet, with 26 per cent saying they would be unable to cover an unexpected expense of $500.

While most Canadians are concerned about the rising costs of gas and food, almost half of those polled for Statistics Canada’s Canadian Social Survey on Quality of Life and Cost of Living said they were very concerned about their ability to afford housing or rent.

Younger adults were the most worried about their finances. Forty-six per cent of people aged 35 to 44 years found it difficult to meet their financial needs over the past year, the highest proportion of any age group.

But opinion polls are not the only signs of stress.

Business insolvency filings in Canada rose 37.2 per cent in 2022, the largest year-over-year increase in more than 30 years, according to the latest statistics from the Office of the Superintendent of Bankruptcy. Consumer insolvencies were up 11.2 per cent for the year, rising 16.3 per cent in the fourth quarter from the same quarter a year ago.

Bankruptcies and proposals to renegotiate terms of loans are expected to rise, at least in the first quarter of this year.

Overall, sentiment in Maru’s household outlook index fell one point to 87, which is slightly more pessimistic than the month before. (A score below 100 indicates negative sentiment, while a score above 100 is positive).

Canadians were more gloomy about the outlook for national and local economies, with 64 per cent saying that the economy is on the wrong track. Fifteen per cent say they will likely lose their job over the next 60 days, up three percentage points from the month before.

Interestingly, the highest level of pessimism is found in Alberta, where the economy and housing market have held up better than much of Canada. Seventy-one per cent of Albertans said the economy was on the wrong track, up six percentage points from last month.

The index has been in negative territory since November 2021, hitting its lowest level of 85 in October 2022.  For comparison, optimism hit a high in July 2021 when the index topped 107.

Maru Public Opinion, a subsidiary of global research firm Maru Group, surveyed 1,521 between Feb. 3 and 6.  The estimated margin of error is +/- 2.5%, 19 times out of 20.

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Here’s a buzzword you may not have heard — “slowbalization.” As the International Monetary Fund chart above shows, globalization, when things move more freely between nations, has ebbed and flowed over the decades.

The chart maps five periods starting with the industrial era in the late 1800s. Global trade in those days was dominated by Argentina, Australia, Canada, Europe and the United States. Advances in transportation lowered trade costs and boosted volumes, write Shekhar Aiyar and Anna Ilyina.

Two world wars and the rise in protectionism that came with them hobbled the trend from 1914 to 1945 and trade became regionalized, despite a push by the League of Nations for multilateral cooperation.

After the Second World War, the United States emerged as the world’s dominant economic power in the Bretton Woods era (1945-1980). The post-war recovery and more open trade drove rapid expansion in Europe, Japan and developing economies.

The next era, from 1980 to 2008, could be seen as the golden age of trade. It was a time of “unprecedented international economic cooperation” with trade barriers removed in China and the integration of the former Soviet bloc, write Aiyar and Ilyina.  The World Trade Organization was established in 1995 to oversee this expanding universe of commerce. Capital flows surged across borders, making the global financial system more interconnected and more complex.

Then came the global financial crisis and the current era “Slowbalization.” The years after the crisis have been characterized by a “prolonged slowdown in the pace of trade reform, and weakening political support for open trade amid rising geopolitical tensions,” they wrote.

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Today’s Posthaste was written by Pamela Heaven, @pamheaven, with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

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