Higher borrowing rates, a relentless rise in the cost of living, a downturn in the housing market and a weakening job market have Canada wondering whether the economy is heading towards a recession.
Here is the position of some Bay Street economists and others on the fate of the Canadian economy:
Call for a recession
BMO Economy
BMO Capital Markets expects a “moderate and short-lived” recession in Canada in the first half of 2023 as a handful of factors weigh on the economy. Slowing U.S. growth, higher interest rates, slowing financial markets and a further correction in house prices are setting the stage for a contraction, BMO says in note to clients .
The tight labor market should also see some adjustment, with BMO expecting the jobless rate to rise to 6.5% from 5.4% currently. Rate cuts are unlikely before early 2024, the bank said.
– As of October 5, 2022
RBC Economics
RBC recently raised its recession forecast and now expects a “moderate” contraction in the first half of 2023 as high living costs and rising borrowing rates weigh on consumer spending and the labor market. lodging. Households could see their purchasing power reduced by $3,000 (about 3% of annualized household disposable income in the first half of this year) in 2023, as persistent inflation offsets any significant increase in wages, estimates the bank.
“We expect the Bank of Canada to suspend its rate hike cycle at the end of 2022, followed by the Fed in early 2023. But that depends on inflationary pressures easing. Inflation trends more Tenancies over the next few months could lead to further increases, and a potentially deeper decline in household consumption and a deeper recession,” RBC said.
– As of October 12, 2022
Gardens
Canada is on the verge of a recession in “early 2023”, Desjardins confirmed in an email to Yahoo Finance Canada. In addition, the company indicates in a client note that the Bank of Canada is aware of the clear trade-offs associated with a rapid increase in its key rate. “Policymakers are willing to risk a mild recession in the near term rather than allow high inflation to take hold, as that would eventually require a more severe downturn.”
– As of September 23, 2022
Scotiabank Economy
Bank of Nova Scotia economists see the economy entering a technical recession, or two consecutive quarters of negative growth, in the first half of 2023. “Although we now expect what might be called a recession technical in Canada, we believe the economy will stagnate in the first half of 2023. The decline in economic activity is likely to be minor and short-lived due to the underlying resilience of the economy,” the bank said in a statement. customer note. GDP growth is expected to slow to 0.6% for next year from 3.2% this year.
Lower commodity prices, heightened uncertainty, lower equity markets, higher borrowing rates and a weak US economy will weigh on Canada.
– As of October 17, 2022
Capital saving
Capital Economics is also on the list of companies calling for a recession in the first half of next year. The company says persistent inflation is weighing on consumer spending and inflation expectations are increasingly priced in as prices remain resilient despite higher interest rates. The slowdown in the housing market will also not bode well for the economy. The firm raised its forecast for the Bank of Canada’s benchmark rate to 4.75% early next year.
– As of October 21, 2022
Don’t use the “R” word
TD Economics
Despite the odds against the domestic economy, TD Economics still forecasts GDP growth, albeit at a slower pace. The bank expects expansion of 0.6% and 0.3% for the first and second quarters of next year, respectively. Rising rates and inflation will weigh on households, but TD says consumer spending has increased since the lifting of COVID-related restrictions and that high commodity prices will help stimulate the economy.
– as of September 20, 2022
CIBC Capital Markets
The Canadian economy will start the new year with a slight contraction, according to a note from CIBC Capital Markets. The economy will contract 0.2% in the first quarter before rebounding to a timid 0.6% growth in the second quarter of next year, the bank predicts. However, the effects will not be felt uniformly across the country. Ontario and British Columbia. will bear the brunt of the impact due to their dependence on the real estate sector and the high level of household indebtedness.
Quebec will also struggle with growth due to its tight labor market, according to CIBC. Meanwhile, Alberta should benefit from higher commodity prices and Atlantic Canada will benefit from an influx of international and inter-provincial migrants.
– to October 20, 2022
National Bank Financial Markets
National Bank Financial Markets forecasts a slight contraction of 0.2% in GDP in the first quarter, followed by growth of 0.9% in the following quarter. In a client note, the bank says Canada has done “so far so good” in avoiding a hard landing in the economy and that key indicators like inflation were moving in the right direction. Overall for 2023, however, National has lowered its GDP forecast to a meager 0.7%.
– from October 2022
Bank of Canada
The central bank lowered its growth forecast amid a sharp drop in housing activity, a weaker labor market and a decline in consumer spending. The Bank has not committed to an outright recession, but says GDP growth through the end of this year and into 2023 is likely to slow to between zero and 0.5%, where “a few quarters with slightly below zero growth are just as likely as a few quarters with little positive growth.”
– to October 26, 2022
International Monetary Fund
The International Monetary Fund expects Canadian economic growth to slow to 1.5% next year, but warns the risks are skewed to the downside. Persistent inflation and a stronger-than-expected drag on the US economy could mean a “significantly worse” outlook for Canada. The IMF adds that it sees the unemployment rate climbing to 6% and house prices erasing their pandemic gains. “A mild recession could easily emerge, and the historical risk distribution suggests a roughly 10% chance of the economy contracting for 2023 as a whole,” the IMF said.
– as of October 12, 2022
Michelle Zadikian is a Senior Reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.
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