Nearly five years ago, Canada was hit by the COVID-19 pandemic – and our lives dramatically shifted.
As schools shut down, education transitioned to online platforms, disrupting traditional learning methods. Meanwhile, countless businesses were forced to close their doors, leaving many Canadians without work and facing financial uncertainty.
In May 2023 – more than two years after it began – the World Health Organization officially declared the end of the COVID-19 pandemic as a public health emergency. However, many Canadians can still feel the impact of the pandemic on society and the economy. Global economic disruptions, including supply chain breakdowns, ongoing conflicts and mounting concerns about financial stability worldwide, have further heightened these challenges.
As a result, the current economic climate has made it increasingly challenging for Canadians to achieve financial security.
Alarming Surge: Canadians’ Rising Debt Levels
Even before COVID-19 arrived, countless Canadians struggled to keep up with the cost of living. In 2018, inflation was already at 2.27 per cent, making it difficult for Canadians to afford essentials like housing, groceries and transportation. For lower- and middle-income families, this economic strain was putting additional pressure on household budgets, leaving little for savings or discretionary spending.
But at the start of the pandemic in 2020, our inflation rate took a significant hit – dropping to 0.72 per cent. As a combative measure to stabilize the economy, the Bank of Canada started raising rates drastically. This adjustment proved challenging, especially for Canadians accustomed to nearly two decades of average inflation rates around 2 per cent.
The benchmark rate was aggressively increased to 3.40 per cent in 2021, further escalated to 6.8 per cent in 2022, and adjusted to 3.88 per cent in 2023. The worst adjustment was in June 2022, when Canada’s inflation rate peaked at 8.1 per cent. For many Canadians already struggling with the rising cost of living, these measures brought additional financial strain.
Unsurprisingly, many Canadians began accumulating debt at unprecedented levels. In late 2021, mortgage debt was over $300 billion from pre-pandemic levels, creating a record-breaking debt-to-income ratio of 186.2 per cent.
Today, mortgages make up the majority of Canadian debt levels. Statistics Canada reports the average 35-44-year-old Canadian in 2023 has $258,800 worth, an increase from $236,100 in 2019. Since many Canadians’ mortgages are fixed, rates won’t adjust immediately despite inflation improvements.
Yet another common type of debt in Canada is credit card debt, which has notably increased. In 2023, the average 35-44-year-old Canadian had $8,100 in credit card debt, up from $7,500 pre-pandemic.
Transunion reports that in 2023, there was an all-time high of 31.2 million Canadians actively using credit. The hefty interest rate on credit card balances only exacerbates many Canadians’ financial worries.
Canadian Labour Market Conditions
After experiencing all-time high unemployment rates during the pandemic, employment has been improving.
By January 2023, total employment had risen by approximately 800,000 above its pre-COVID-19 baseline. During the height of the pandemic in May 2020, the unemployment rate was 14.1 per cent. Compared to October 2024’s rate of 6.5, this is a monumental change in the right direction.
With more and more Canadians now employed, the labour market has returned to pre-pandemic unemployment levels of 5-6 per cent. Some sectors, like manufacturing and food service, are seeing record-low job vacancies. Those working have relatively secure jobs, too – layoffs remain lower than during other job market downturns.
However, large population growth is affecting the employment situation. Although new jobs are being added to the Canadian economy, it’s not enough for the number of job seekers. At the same time, employers are hesitant to hire additional workers because of the uncertainty of interest rates and inflation. As a result, Canadians in certain occupations find it highly competitive when applying for work.
Yet, experts predict the labour market will see more improvements now that interest rates are coming down. Lower interest rates typically reduce borrowing costs for businesses, encouraging them to expand, invest in new projects, and potentially hire more workers. This boost in economic activity can result in job creation across multiple sectors.
Canadian Businesses: Not Quite Back to Business
Canadians who were business owners had even more challenges to overcome during COVID-19. Many had to navigate mandated closures, supply chain disruptions, and decreased consumer demand, all while managing the financial strain of maintaining their businesses.
For many Canadian business owners, the pressure was too much. Statistics Canada reports that there have been more business closures than openings since the summer of 2022. Except for the pandemic’s start, November 2022 marked the first time on record that the number of active businesses showed no positive growth for five consecutive months.
In June 2024, the business closure rate was 5 per cent – the highest since June 2020, which saw 7.1 per cent. At the same time, the number of active businesses decreased by 1.0 per cent, or just over 9,000 businesses.
Navigating rising inflation, high input costs and labour-related obstacles would be taxing enough. However, at the same time, businesses had to figure out how to repay the federal government support they received during the pandemic. Although some loans were forgivable, the repayment deadline was set for December 31, 2023, with a final deadline pushed back to March 2024.
Repayment deadlines undoubtedly contributed to the high number of business closures, as business insolvencies rose at the start of 2024. The 87.2 per cent increase from the previous year marked the sharpest increase in 37 years of record-keeping.
Conclusion: The Long-Lasting Economic Effects of COVID-19 on Canadians’ Finances
Although now officially declared over, ripple effects from the COVID-19 pandemic continue to shape daily life across the country. Many Canadians are still grappling with high debt levels and the fallout of unemployment due to the pandemic. Yet others simply cannot keep up with Canada’s recent skyrocketing inflation rates despite their employment situation.
No matter your current financial challenge or uncertainty, professional credit counselling can help. Using a personalized, intensive approach, we can create a plan that helps you reduce debt and live debt-free. Reach out to SolveYourDebts.com today for a free consultation.
