Canada unlikely to avoid recession: RBC - Mortgage Rates & Mortgage Broker News in Canada

Abstract

Rapidly rising interest rates and other economic headwinds mean it's becoming increasingly likely Canada will enter into a recession. That's the prediction from RBC senior economist Joshua Nye, who noted, "With a soft landing becoming more challenging, our base case assumes mild recessions in most of the economies we track." Nye noted that the Canadian economy had sustained good momentum up until May GDP posted a 0.2% decline. "We see these headwinds extending into 2023, and the impact of rising debt servicing costs on Canada's highly indebted household sector will only continue to build next year," Nye said, adding that a softer global growth backdrop will also weigh on the Canadian economy. The unemployment rate is also forecast to rise by 1.5 percentage points from its historically low rate of 5.1%. Canadian recession to be "Moderate and short-lived" Another RBC report came to the same conclusion, and suggested that any forthcoming recession should be "Moderate and short-lived by historical standards." RBC economists Nathan Janzen and Claire Fan added that such a recession could be "Reversed once inflation settles enough for central banks to lower rates." "Prices are still rising too fast and inflation won't slow sustainably until demand falls," they said. "But once that happens, central banks will ease interest rates again." For what it's worth, CIBC Capital Markets thinks rate cuts could be coming sometime after 2023. "The more that credit spreads inflate, the more that mortgage discounts will shrink, especially on new variable-rate mortgages," he told CMT. "Rates are caught in a tug of war between investors who fear persistent inflation and investors who expect a recession," he added. "The former have the upper hand today, but the latter will ultimately win. And when they do, they'll pull mortgage rates back down. It's only a question of how long that takes and how high rates climb in the meantime."