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‘Everything but set in stone’: More economists join the chorus predicting a Canadian recession

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Housing, work and consumption conditions point to an imminent slowdown

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Signs of an impending recession in Canada are beginning to appear everywhere, and economists are not predicting a soft landing, but rather a bumpy one, as the Bank of Canada continues its months-long fight against inflation by raising interest rates. The Bank of Canada has raised its benchmark rate by 300 basis points since March to 3.25 per cent and signaled on September 7 that more hikes are on the way, likely to hit the housing market and the broader economy further. .

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housing fall

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Declining listings and a drop in sales volume could suggest that Canada’s real estate market is still a long way from pre-COVID-19 market dynamics. Desjardins Group economist Randall Bartlett said more rate hikes are likely, which will continue to drive the contraction in residential investment and weigh on the Canadian economy. “Our view is that we are going to see a continued slowdown in Canadian sales activity and continued weakness on the pricing side going forward,” he said. This, he added, is likely to push the economy into recession in the first half of 2023.

labor problems

Labor markets remain strong and unemployment rates are still at the lowest levels in decades. But economists at the Royal Bank of Canada said this strength will delay but not prevent a recession. Canada’s jobless rate jumped to 5.4 percent in August, with RBC expecting further increases in unemployment as the broader economic backdrop deteriorates. “We expect the coming year to bring recessions for Canada, the US, the euro zone and the UK,” the RBC team, including chief economist Craig Wright, said in a note. “That said, we expect the looming recession in Canada to be ‘moderate’ by historical standards.”

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consumption decreases

The RBC economists said that although households built up excess savings during the pandemic, they will feel less wealthy as house prices fall and borrowing costs rise, and they will be less likely to spend from this pile of cash. . Economist David Rosenberg predicts that consumer consumption will fall in the coming months as the government removes pandemic benefits. The drag on household income, he said in a column for the Financial Post, will be even greater after accounting for downward pressure on organic income from stagnant job creation. “Furthermore, if we get past the downward pressure on spending from the negative wealth effect of falling home prices and tumbling stock markets, the outcome of the Canadian recession is virtually set in stone,” he said.

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Weaker FedEx Outlook

FedEx Corp. on Friday withdrew its 2023 earnings forecast and issued an earnings warning, signaling that worsening trends have fueled fears of a broader earnings decline. The package delivery giant joins other global logistics companies in pointing out that consumers are saving their money for essentials as prices rise. Bartlett said that FedEx is a “great proxy for what’s going on in terms of global trade,” as a rapid drop in the number of transactions is usually a clear, up-to-date sign that the global economy is cooling down very quickly.

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potential global recession

The World Bank, in a report released Thursday, said the global economy is in the midst of one of the most internationally synchronous episodes of monetary and fiscal policy tightening in the last five decades. With several countries withdrawing monetary and fiscal support to curb the risk of high inflation, which has reached multi-decade highs in many countries, the World Bank said this could have larger-than-expected impacts, both in tightening financial conditions as in growth acceleration. decelerate. To minimize those impacts, he said central banks need to coordinate their actions and “clearly communicate their policy decisions” to reduce “the degree of policy tightening needed to achieve the desired disinflation.”

• Email: dpaglinawan@postmedia.com | Twitter:

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