High interest rates are weighing on household credit conditions, which will have implications on spending, according to one chief economist. 

Benjamin Tal, deputy chief economist at CIBC Capital Markets, said in a report Monday that the increased level of household sensitivity to interest rates is clear with “rapidly slowing” credit growth. He said that while the impact of the Bank of Canada’s tightening campaign may not be “fully visible yet” in labour market or headline gross domestic product (GDP) figures, the impact can be seen in household credit conditions. 

“At barely above the zero mark, the year-over-year real growth in total outstanding credit is the lowest seen since the double dip recession of the 1980s,” Tal said in the report. “It’s now well below the growth rates seen during the 2008 recession, and is a full percentage point under the growth rate seen at the depths of the 1991 recession.”


However, Tal said he sees upcoming credit losses as “manageable” and should be viewed as a “signpost of a squeeze on spending” and not as a possibly significant “credit risk event.” 

The significant slowdown in credit growth can be seen across the interest rate-sensitive mortgage market and also in consumer credit, the report notes, which now faces negative annual growth. 

Tal highlighted that annual growth in credit limits available to households is increasing by around half the rate seen partway through 2022, and below pre-pandemic levels. 

“In real terms, limits are hardly growing. At the same time, households are less eager to use that available credit, with the utilization rate falling in recent months,” the report said. 

Consumer insolvencies

Because of the tightening economic conditions, the report highlights that consumer insolvencies have risen over 20 per cent year-over-year, albeit from a “tame level.” 

“On a per-capita basis, we’re neither climbing as steeply nor as far as in previous slowdowns. What’s more, as opposed to previous episodes of rising insolvencies, the vast majority…of these insolvencies are ‘proposals’ to restructure debt rather than outright bankruptcies,” Tal said in the report. 

The relatively high instances of consumer proposals compared to bankruptcies work to mitigate loss rates for financial institutions, according to Tal.