Desjardins analyst highlights the challenges posed by the impending renewal cliff
Elevated mortgage renewal rates are casting a shadow over the currently volatile economic landscape – even potentially leading the nation into a recession, according to Royce Mendes, managing director and head of macro strategy at Desjardins.
Mendes warned that many Canadians, who are wrestling with the added strain of mounting mortgage costs, will be compelled to pare down their expenditures to meet their debt obligations.
“Canadians who have been renewing mortgages have already been diverting a lot of income and then spending away from businesses in Canada … now towards debt service,” Mendes said in an interview with BNN Bloomberg earlier this week.
Mendes added that the impact of mortgage renewal rates has been somewhat obscured by the ongoing influx of immigrants, contributing to a continuous growth in population. Desjardins is expecting this demographic trend to be short-lived, with a likely deceleration in population growth this year due to new federal policies geared towards curbing the pace of immigration.
Manulife Investment Management warns of economic impact as higher interest rates affect mortgage renewals.
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Once immigration moderates, Canadians will likely see a more accurate reflection of the economic landscape, one not altered by demographic influences, Mendes said.
“We won’t have that extra boost to [the gross domestic product] and we’re going to see the cumulative effects of these mortgage renewals start to show up a lot more clearly in the data,” Mendes said.
“As we move forward, we expect that the economy is going to dip into at least a mild recession this year.”
