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General Market Commentary
THE BANK OF CANADA recently released its Financial Stability Report,
an assessment of the resilience of the Canadian 昀椀nancial system and
focuses on key risks that could undermine its stability.
According to the report, over the past 12 months, Canadian households
have been carrying, on average, less debt relative to their income,
and insolvency 昀椀lings by businesses have dropped signi昀椀cantly. But
there are ongoing pockets of 昀椀nancial stress; the economic impacts
of the pandemic, as well as elevated housing prices due to persistent
imbalances in the housing market, have led to higher levels of debt
for some households and businesses and this has made them more
vulnerable to 昀椀nancial shocks.
CUTLINE
However, since January the large and abrupt shifts in U.S. trade policy
have led to some bouts of extreme market volatility: “The trade war
currently threatens the Canadian economy and poses risks to 昀椀nancial
stability. Near-term unpredictability of US trade and economic policy
could cause further market volatility and a sharp repricing in assets,
leading to strains on liquidity. In extreme circumstances, market
volatility could turn into market dysfunction.”
E N V I RON M E N T J OURN A L QUA RT E RLY RE PORT • S UM M ER 2 02 5 • P AGE 2 8
