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Canada is headed for a moderate recession beginning next quarter mainly due to rising interest rates, according to an economic forecasting model developed by Oxford Economics.
Driving the news: There’s now a 63% chance of a recession in the next six months, according to the model, a probability threshold that has been passed in four of Canada’s six most recent recessions.
- GDP will contract by 1.8%, Oxford Economics forecasts, which would be a less severe downturn than the typical Canadian recession.
The predicted recession may be milder than normal, but some parts of the economy will be worse hit than others.
- Housing prices will fall 30% from peak-to-trough, according to Oxford Economics (they’re already down 16% since February), but stay above pre-pandemic levels.
- Consumer spending will fall sharply as high inflation and job losses cut into people’s disposable income.
Why it matters: The forecast will add weight to mounting pressure on the Bank of Canada from some corners to stop raising interest rates before a recession takes hold.
- Labour leaders are urging Bank of Canada governor Tiff Macklem to pump the brakes on rate hikes until a clearer picture of where the economy is headed emerges, per The Globe & Mail.
- They warn that higher interest rates often take many months to have an effect on the economy, and the Bank risks overshooting its mark, leading to a worse-than-necessary downturn that would hurt workers.
What’s next: We’ll get hard data on how the economy is coping with higher rates so far when the latest GDP and wage numbers arrive on Thursday.