As a possible recession continues to loom amidst soaring costs of living and increased interest rates, RBC economists say unemployment could climb to 6.6 per cent by early 2024 while consumer insolvencies are projected to increase almost 30 per cent in the next three years.

This analysis is based on findings that improvements to the financial situations of Canadians that occurred in the early stages of the pandemic -- a result of massive pandemic-related support measures from the government -- are now drying up, with debt climbing amidst a softening economy and increasing interest rates.

“We expect the environment to remain challenging for years to come – but an all-out collapse is unlikely,” economists Robert Hogue and Mishael Liu wrote in a research note last Wednesday.

As the cost of living continues to soar, RBC anticipates mortgage delinquencies to rise by more than a third of current levels over the coming year. Over the next three years, consumer insolvencies would return to pre-pandemic levels, Hogue and Liu said.

Despite early economic fears that the pandemic would result in serious financial trouble for Canadian households, the data suggests otherwise. According to the economists, “net worth increased, and various metrics of debt service, loan delinquencies and consumer insolvencies grew noticeably stronger.”

Financial improvements such as these were largely due to government support programs such as the CERB and CRB, but these measures only provided a financial Band-Aid to a much deeper economic wound, as a “booming housing market put mortgage debt on a fast track,” the authors wrote.

Towards the end of 2021, however, Canadian household debt-to-income ratio had exceeded pre-pandemic levels. RBC economists also pointed out that the amount of mortgages in arrears have not increased, remaining the lowest on record, while the rate of consumers who are 90 days or more late on their debt service payments have spiked for credit cards, auto loans, installment loans and lines of credit.

RBC economists expect the state of Canada’s economy to trigger an uptick of job losses, with a projected spike in national unemployment rising from the current five per cent to 6.6 per cent by the first quarter of 2024.

“Still, we expect any financial troubles to remain relatively contained in the short to medium terms,” Hogue and Liu said.