A new economic outlook report from RBC suggests that Canada is likely heading into a “mild recession” in the middle of this year.
The report, which dropped on Wednesday, discusses how Canadians have weathered the Bank of Canada’s several interest rate hikes over the last year.
“Canada’s [economic growth] stalled toward the end of 2022 with a flat GDP growth reading in Q4 — the first time the economy has failed to expand since a pandemic-related decline in Q2 2021,” it notes.
A major spike in employment rates and 0.3% growth in January this year paints a slightly promising picture of the future that experts had expected earlier.
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The Bank of Canada held its interest rate at 4.5% earlier this month — the first rate hold since March of 2022. But it’s unclear if this will be a lasting trend, given that inflation is slowing down pretty slowly.
“Recent turmoil in financial markets has cast doubt on whether the Feds will continue to raise interest rates. Higher interest rates will continue to cut into household purchasing power with a lag,” the report predicts.
Canada may still be able to avoid a massive recession if it experiences a milder one, expected to hit in the middle quarters of 2023. Canadians will have an even more difficult time with debt payments than they’ve already been facing.
RBC says the share of household disposable income eaten up by debt payments will rise to “record levels” by the second half of 2023, lowering purchasing power and slowing down consumer spending.
These debt pressures might also hit businesses, affecting the recently seen boom in hiring. Unemployment rates are expected to rise to 6.8% in Canada from 5.0% by early 2024.
Expect high immigration levels to help patch Canada’s labour market gaps and add nearly a million new consumers to the Canadian population over this year and the next. RBC’s experts say GDP should grow due to these factors after the mid-2023 decline, but modestly.
The bank has also released provincial economic insights. Curious about what’s in store for yours? Read the full report from RBC here.
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