A short technical recession in Canada has become the consensus scenario for economists. Gross domestic product is expected to record back-to-back quarterly declines at the start of 2023, according to a Bloomberg survey of 26 economists that took place between Nov. 4 and 11. It marks the first time in recent memory two straight quarters of contraction are the base case.

“The Bank of Canada says it’s trying to balance the risks of under-and over-tightening, but that ship might have already set sail,” Royce Mendes, head of macro strategy at Desjardins Capital Markets, said by email. “The impacts of higher interest rates will likely push the nation into recession.”

Based on median estimates in the survey, Canada’s economy is projected to contract by an annualized 0.5% in the first three months of 2023, and 0.6% in the second quarter. Mendes is forecasting a somewhat deeper downturn, with the economy poised to shrink by an average 1.3% in the first half of this year.

Most economists are still anticipating a largely soft-landing outlook, with Canada returning to growth in the second half. The economy is seen growing by an average 0.6% in 2023 and 1.7% in 2024.

The unemployment rate is seen rising as high as 6.4% in 2023 — which would still be below average for the past decade. The Bank of Canada is seen ending its tightening cycle early next year, with the benchmark overnight rate reaching 4.25%, from its current 3.75%.

Source: Financial Post