Canada not alone in underperforming the United States, RBC's Dave McKay says

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The United States economy is powering ahead while the economies of Canada, the United Kingdom and Australia are slowing from softer consumer demand caused by higher interest rates, the head of Canada’s biggest bank said Tuesday.

Royal Bank of Canada chief executive Dave McKay told a banking conference in New York on March 5 that U.S. consumer debt is not being repriced due to that country’s 30-year fixed mortgage terms, while consumers in Canada, Australia and the U.K. are being forced to renew at higher levels.

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Canadian banks are repricing roughly 15 per cent of their “back book” of existing mortgage clients, he told the RBC Capital Markets Financial Institutions Conference, adding that those are fairly significant shocks that are pulling disposable income back from the consumer.

McKay had previously identified mortgage payment shock as the main culprit for Canada’s underperformance.

“It belies an underlying slowing of the Canadian economy, the U.K. economy and Australian economy largely because of the difference in how the consumer is behaving,” he said.

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McKay said the current economic cycle has been a unique phenomena that has seen consumers struggling with debt while the employment rate remains high.

“So I think from that perspective, it’s unique and it’s helping us engineer a softer landing,” he added.

“The U.S. economy’s outperforming but inflation is coming down, so it’s working.”

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