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Canadians are grappling with \u201cpayment shock\u201d and Americans are not, and that will put the two countries\u2019 economies on diverging paths to start 2024, according to the chief executive of Canada\u2019s largest bank.<\/p>\n
\u201cThe U.S. economy struggled to slow the consumer, (while) the Canadian economy has slowed the consumer quite significantly,\u201d Royal Bank of Canada CEO David McKay told Bloomberg TV in a Jan. 17 interview on the sidelines of the World Economic Forum in Davos.<\/p>\n<\/div>\n
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The main culprit, McKay said, are the differing payment terms for mortgages in the two countries.<\/p>\n
Canada doesn\u2019t have 30-year fixed mortgage contracts as they do in the U.S., with most homeowners instead having contracts that must be renewed at prevailing rates every five years, or even more frequently. Floating rate mortgages are also more prevalent in Canada.<\/p>\n
That means heavily indebted Canadian households are being hit with higher mortgage payments, with 30 per cent or mortgage holders already facing 20 to 25 per cent hikes in their monthly outlays, he said.<\/p>\n
\u201cThat\u2019s been challenging for Canadians,\u201d McKay said.<\/p>\n
McKay said the impact on consumers is already visible in the bank\u2019s credit card business, where spending is \u201coff\u201d for those who hold variable-rate mortgages.<\/p>\n
The Canadian economy has thus slowed much more quickly to the point that it already has at least one quarter of negative GDP under its belt and possibly another, he said.<\/p>\n
\u201cWe\u2019ll technically be in a soft-landing recession early this year,\u201d McKay said, adding that inflation in Canada remains \u201ca little bit sticky\u201d around just above three per cent.<\/p>\n<\/div>\n
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