Proof Point: Canada’s recession to arrive earlier than expected
In previous work, we projected a moderate recession for Canada’s economy in 2023. We now believe this downturn will arrive as early as the first quarter of next year.
Higher prices and interest rates will shave $3,000 off the average household’s purchasing power, weighing on goods purchases.
And the jobless rate will near 7% while remaining less severe than in previous downturns.
As debt-servicing costs increase and purchasing power declines, lower income Canadians—many already adjusting to the loss of pandemic support—will be hit hardest.
The bottom line: The pain of the upcoming recession won’t be distributed equally among Canadian businesses and households. The manufacturing sector will likely be among the first to pull back while some high-contact service sectors like travel and hospitality could prove more resilient than in a ‘normal’ historical recession.
Signs of strain are emerging as interest rates rise
Cracks are forming in Canada’s economy. Housing markets have cooled sharply. Central banks are in the midst of one of the most aggressive rate-hiking cycles in history. And while labour markets remain strong, employment is down by 92,000 over the last four months.
And the pressure is still building. While the Bank of Canada is expected to lift the overnight rate to 4%, the U.S. Federal Reserve will likely hike to between 4.5% and 4.75% by early 2023. These factors will hasten the arrival of a recession in Canada—which we now expect to start in the first quarter of 2023 (one quarter earlier than our previous projection).
https://thoughtleadership.rbc.com/ca...than-expected/