Recession calls growing as Canadian economy cools

Housing, working and consumption conditions all point to a looming slowdown

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Signs of an imminent recession in Canada are starting to appear everywhere, and economists are forecasting a bumpy landing rather than a soft one as the Bank of Canada continues its months-long fight against inflation by raising interest rates. The Bank of Canada has raised interest rates by 300 basis points to 3.25 percent since March and signaled on September 7 that more rate hikes are imminent, likely to further dampen the housing market and the broader economy.

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The drop in listings and a drop in sales volume could indicate that Canada’s housing market is still a long way from pre-COVID-19 market dynamics. Desjardins Group economist Randall Bartlett said further rate hikes are likely, which will further shrink residential investment and weigh on the Canadian economy. “In our view, we will see a continued slowdown in sales activity in Canada and continued weakness on the pricing side going forward,” he said. This, he added, will likely push the economy into recession in the first half of 2023.

work problems

Labor markets remain strong and unemployment rates are still at their lowest levels in decades. But economists at the Royal Bank of Canada said that strength will delay, but not prevent, a downturn. Canada’s unemployment rate jumped to 5.4 percent in August and RBC expects unemployment to rise further as the overall economic environment worsens. “We expect the coming year to bring recessions for Canada, the United States, the eurozone and the United Kingdom,” RBC’s team, which includes chief economist Craig Wright, said in a statement. “Nevertheless, we expect the coming downturn in Canada to be ‘moderate’ by historical standards.”

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Consumption decreases

RBC economists said that while households have accumulated excess savings during the pandemic, as house prices fall and borrowing costs rise, households will feel less wealthy and less likely to spend from that pile of cash. Economist David Rosenberg predicts consumer consumption will collapse in the coming months as the government scraps the benefits of the pandemic. The drag on household income, he said in a column for the Financial Post, will be even greater given the downward pressure on organic income from stagnant job creation. “If we also add downward pressure on spending from the negative wealth effect of falling house prices and tumbling stock markets, the outcome of Canada’s recession is all but set in stone,” he said.

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FedEx outlook weaker

fedex corp on Friday withdrew its earnings guidance for 2023 and issued a profit warning saying deteriorating trends have fueled fears of a broad-based earnings slump. The parcel delivery giant joins other global logistics companies in signaling consumers are saving their money for essentials as prices rise. Bartlett said FedEx is a “great indicator of what’s happening in terms of global trade” as a rapid drop in the number of transactions is often a clear and timely signal that the global economy is cooling off very quickly.

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Possible global recession

The World Bank, in a report released on Thursday, noted that the global economy is in the midst of one of the most internationally synchronized episodes of monetary and fiscal tightening in the past five decades. As several countries withdraw monetary and fiscal support to curb the risk of high inflation — which has risen to multi-decade highs in many countries — the World Bank said it could have a bigger impact than intended, both in tightening financial conditions and also slower in increasing growth. To minimize this impact, central banks should coordinate their actions and “clearly communicate their policy decisions” to “reduce the amount of monetary tightening needed to achieve desired disinflation.”

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