Consumer Spending In Canada To Hit Lowest Level In A Decade: National Bank Report

Economists with the National Bank of Canada (TSX: NA) are forecasting that consumer spending will fall to its lowest level in a decade in 2019.

In a new report, economists at the bank say that they expect real consumption growth — which is calculated once the impact of inflation is stripped out — to hit 1.3% in 2019, which would be the lowest level since 2009 when it fell to 0.2% amid the global financial crisis. The slowdown in consumer spending is being blamed on a softening housing market, pressure from higher interest rates and a low household savings rate.

"Part of the loss of momentum can be attributed to a softening housing market, which is not only restraining resales and home prices, but also hurting consumption spending via fading housing wealth effects," reads the National Bank report.

Retail sales data in November fell by 0.9%, according to Statistics Canada. Housing data from the country's most expensive market, Vancouver, on Monday showed home sales in January fell to their lowest level in a decade — plunging nearly 40% year-over-year.

Higher interest rates are also hurting the ability of households to spend, says the National Bank report. The Bank of Canada has raised interest rates five times since mid-2017. Overall, National Bank forecasts that real consumption grew by 2.2% last year, but it will slow to 1.3% this year, and slow even further to 1.2% in 2020.