The 2024-2026 mortgage renewals "cliff" is manageable as long as the Bank of Canada cuts interest rates and the job market and economy don't weaken too much. Owing to the 75 basis point rate decline through September and the 50 bps cut in October, not all mortgages will renew at higher rates next year.
Royal Bank economists estimate that total mortgage payments in 2025 will increase by about 0.1% of total household disposable income as many extend amortizations to keep payments low.
The jobless rate, though declining a tick in September to 6.5%, is meaningfully higher than before the pandemic and is likely to rise to 7% next year.
The total number of job openings in the economy is 25% below what it was a year ago, and if it were to weaken further, the unemployment rate would rise even more.
Earlier this cycle, there were more job vacancies than people looking for work, so the drop in job openings didn't have a material impact on the economy. But that's no longer the case. September's inflation data confirms that the job market trend is downward.
Economic growth has been below potential since 2022, and preliminary third-quarter data indicate another slowdown to about 1.3% growth in Q3, well below the BoC's initial forecast. Hiring intentions remain woefully inadequate in the face of staggering population growth.
Business start-ups are also sluggish, reflecting a business climate undermined by overly restrictive monetary policy.
The BoC must now aggressively cut interest rates. Monetary policy remains highly restrictive.
The Bank of Canada's Business Outlook Survey shows no sign of stabilization in the short term. Indeed, hiring intentions were virtually unchanged in Q3 and remained below the historical average. A significant number of companies are overstaffed.
The latest data show that the private sector vacancy rate is plummeting and has reached its lowest level since 2016. More than half of all small- and medium-sized businesses are fearful of weakening demand for their goods and services.
The number of active companies fell sharply in the second quarter due to a sharp jump in business closures and a low number of start-ups. The stagnation in the number of active companies in Canada since 2022 is undoubtedly one consequence of the extremely powerful tightening of monetary policy.
