Trade war has rattled financial stability progress, creating higher risks: BoC

The Bank of Canada says household finances and the financial system were showing signs of increased resilience as the year started, but the threat of a prolonged trade war has pushed risks higher overall.

The central bank says in its latest Financial Stability Report that by the end of 2024, households had less debt on average relative to their income, while insolvency filings by businesses dropped significantly.

While debt strain is on the rise for households without a mortgage, heightened fears of financial shocks at renewal for households with a mortgage have dropped following a series of interest rate cuts.

But the Bank of Canada says the trade war with the United States threatens those gains, and that if it goes on for some time it could cut economic growth and push up unemployment.

In the case of a severe and long-lasting global trade war, the bank says households could fall behind on their mortgage payments at levels that exceed the 2008-09 global financial crisis.

The bank says in the near-term, the trade war could cause further market volatility, while trade-exposed workers could see layoffs and financial strain.

This report by The Canadian Press was first published May 8, 2025.

The Canadian Press