Canada’s Recession Will Hit Earlier, Harder and Last Longer Than Expected.

RBC economists say Canada’s economy could fall into a recession as early as the first quarter of 2023, but they expect unemployment to be “less severe” than previous downturns.

In a new report, the economists say the downturn won’t hit households and businesses equally. They say lower-income Canadians will likely be hit the hardest, as purchasing power falls and debt-servicing costs rise. They say higher prices and interest rates will shave $3,000 off the average household’s purchasing power.

The manufacturing sector will likely be among the first sectors to pull back, while service sectors like travel and hospitality could prove more resilient.

The report says the jobless rate, which currently sits at 5.2%, will near 7%.

To read an in-depth interview, visit The Star website. 

Source: The Star
Source: The Star
Source: Financial Post

IMF Warns of Possible Recession in Canada, Urges Fiscal Prudence

An International Monetary Fund report is forecasting “substantial” cooling in Canada over the next year in which “shocks could easily push the economy into a mild recession.” In a report, IMF staff said growth in Canada is expected to slow to 1.5% in 2023 from 3.3% in 2022. The unemployment rate could rise to above 6%.

But the report also warned that the economic outlook could be “substantially worse.” If inflation remains high, the Bank of Canada may have to raise rates further, bringing on a more severe downturn. How the rest of the world, especially the United States, fares will also have an important impact on Canada, it said.

“A mild recession could easily emerge, and the historical distribution of risks suggests a roughly 10% chance that the economy would contract for 2023 as a whole,” said IMF’s Canadian mission’s annual statement.

Economists at Canada’s biggest bank warned that the country is likely fall into recession sooner than they had expected. The Royal Bank of Canada had originally predicted the contraction would come in the second quarter, but it now expects a recession early in 2023, as higher interest rates and inflation sap growth.

IMF staff expect the Bank of Canada will take its rate to at least 4% by the end of this year and leave it there for several quarters, resulting in inflation falling back to the 2% target by the end of 2024. Higher borrowing rates will lead to a 20% fall in home prices, but rising immigration should buffer the decline, they said.

It also urged Canadian governments to support this fight against inflation, by saving revenue windfalls from the commodity boom and avoiding widespread spending increases that would undercut the central bank’s efforts.

Source: Globe and Mail
Source: Financial Post