The uncertainty surrounding a potential recession in Canada remains a topic of discussion, with analysts considering its likelihood rather than its possibility.
Should a recession materialize, one specific demographic could face heightened challenges, potentially introducing an additional layer of complexity to the already sluggish economy.
Canadian millennials, not only representing the primary working-age population but also heavily burdened by debt, might encounter difficulties navigating potential job losses amid a recession. Such a scenario could lead to a further decrease in consumer spending.
In an insightful article on RBC.com, economist Carrie Freestone highlights the substantial debt-to-disposable-income ratios for different age groups. Canadians aged 35-44 carried a ratio of 250% in 2019, while younger millennials (under 35) held a ratio of 165%. These figures significantly exceed the 150% ratio of their counterparts in 1999.
Though only a third of millennials possess mortgages, those who do might face a significant 25% increase in their payments upon renewal in early 2024. Despite rising earnings, the rise is not proportionate to the mounting debt obligations, rendering this demographic notably vulnerable in the face of potential job loss.
Contrastingly, Freestone points out that baby boomers occupy a more resilient position. Generally retired, they are less susceptible to interest rate hikes and rely less on employment income, with a substantial portion of their funds originating from private pensions and government benefits.
Nonetheless, this generation’s limited consumption means that their ability to sustain spending during a recession wouldn’t be enough to counterbalance the reduction in discretionary expenditures by younger consumers.Freestone concludes by suggesting that while the economy has maintained stability even after substantial rate increases, a surge in unemployment rates could result in an entirely different demand scenario in the upcoming year.
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