Canada could avoid a recession in 2023 thanks to inflation cuts, interest rates: report

Feb 23 2023, 8:17 pm

Can Canada avoid a recession?

According to a new report, there is a strong possibility and it’s all thanks to the interest rates and surge in immigration levels.

“[The] Bank of Canada expected to continue raising interest rates to cool persistent inflation and surging demand, which has been spurred by a hot labour market,” according to “The Real Economy Canada” report from RSM.

“[It] will likely raise its policy rate to a peak of 4.75% by the middle of 2023 before holding rates in place to keep financial conditions tight.”

Canada economy

The report also found inflation could be cut in half by the end of 2023.

Joe Brusuelas, the chief economist for RSM, says that will be dependent on the Bank of Canada’s decision.

“As a result, we can expect inflation to fall to around 3% by the end of 2023 and return to the 2% target by the end of 2024.”

But, there are still many factors that could lead to an economic slowdown, while still remaining out of a recession which is technically two consecutive quarters of negative gross domestic product.

Canada immigration

“We expect consumer confidence to wane and for retail sales to slow as long as inflation remains elevated. Because the consumer sector is behind much of the economy’s output, we expect that to translate into lower GDP growth for Canada in both 2023 and 2024,” Brusuelas said.

The report found that now more than ever employee retention is at the forefront of the financial future for Canadians. More than 75% of Canadians studied in the report said they were happy where they work and that a flexible work environment remains a key draw for talent.

But, many companies continue to see few candidates on their job postings, especially in certain sectors and that is weighing on the economy.

“Increased supply of labour will be a crucial component in achieving higher economic output, hence the federal government’s growing immigration targets,” the report said.

“Now, the economy is experiencing excess demand. While the price of oil has put a floor under the decline, the combined interest rate and inflation shocks have dented housing, an important sector. Those shocks will ultimately lead to slower growth. Canadian gross domestic product is projected to decline from about 3.25% growth this past year to just under 1% in 2023 before rising to 2% in 2024.”

“We expect consumer confidence to wane and for retail sales to slow as long as inflation remains elevated. Because the consumer sector is behind much of the economy’s output, we expect that to translate into lower GDP growth for Canada in both 2023 and 2024,” the report added.

Claire FentonClaire Fenton

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