RBC predicts recession will hit Canada by March next year
Economists with one of Canada’s major banks predict a recession will arrive in the first quarter of next year.
The updated forecast comes in an RBC report released on October 12, titled “Proof Point: Canada’s recession to arrive earlier than expected.”
The bank previously predicted a recession would come in 2023, but now it’s forecasting the economic downturn will arrive as early as the first quarter of the year.
Higher prices and interest rates are expected to shave off $3,000 of spending power from the average Canadian household.
The unemployment rate is also forecast to rise to 7% nationally — less severe than in previous recessions.
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The economic downturn is expected to impact lower-income Canadians the most, who are already adjusting to the loss of pandemic support.
“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,” authors Nathan Janzen and Claire Fan wrote.
They point to a cooling housing market, aggressive rate hikes from central banks, and a slight increase in unemployment as signs that cracks are forming in Canada’s economy.
There’s currently an excess of job openings in the labour market, and the RBC economists believe that will guard against a major spike in unemployment in the short term. However, unemployed people can expect longer job search times, and those with jobs could see their hours cut.
More outright layoffs could follow by Summer 2023.
RBC expects Canada’s federal agencies to stop hiking interest rates in late 2022, as long as inflation pressures ease. The US, however, could hike its rates from 4.5% to 4.75% in early 2023, which would hasten the arrival of a recession.
Interest rates are the speed at which interest accrues on loans, and the interest rates offered to people are generally influenced by the interest rates set by government bodies. Increasing interest rates discourages borrowing, and generally leads to economic slowdown.
Wages are rising about as fast as inflation in Canada, and the rising cost of goods is eating into Canadians’ spending money.
This recession could be different than previous ones in that travel and hospitality sectors that were hard-hit by the pandemic could prove more resilient in the coming year as people strive to have the experiences they couldn’t when restrictions were in place.