The signs of a recession in Canada are starting to appear everywhere, and economists are not predicting a soft landing, but rather a bumpy one, as the Bank of Canada continues its months-long fight against inflation by raising interest rates. The Bank of Canada has increased its key rate by 300 basis points since March to 3.25 per cent and on Sept. 7 it signalled that more hikes are coming, which will likely hurt the housing market and the overall economy.
Canada's housing market is a long way from pre-COVID 19 market dynamics, as the decline in listings and drop in sales volume could suggest that it remains a long way from pre-COVID 19 market dynamics. Randall Bartlett, the economist for the Desjardins Group, said more rate hikes are likely to occur, which will push residential investment to contract and weigh on the Canadian economy. He said that we want to see a continued slowing of sales activity in Canada and continued weakness on the price side going forward. The unemployment rate is still around the lowest level in decades, and labour markets are strong. But economists at Royal Bank of Canada said this strength would delay but not prevent a downturn. Canada's unemployment rate went to 5.4 per cent in August, and RBC expects to see further increases in unemployment as the economic backdrop deteriorates. RBC's team, including chief economist Craig Wright, said in a note that the year ahead is expected to bring a number of recessions for Canada, the United States, the Euro area and the United Kingdom. We expect the coming downturn in Canada to be moderate by historical standards. RBC economists said that households will feel less wealthy when house prices drop and borrowing costs go up, and they will not be likely to spend from this cash pile because they have accumulated excess savings during the pandemic. Consumer consumption will fall as the government removes pandemic benefits, according to Economist David Rosenberg. He said that the downward pressure on organic income is due to the stagnating job creation, and the drag on household income will be even greater in a column for the Financial Post. He said that if we add on downside pressure to spending due to the negative wealth effect from falling home prices and reeling equity markets, the Canadian recession outcome is all but set in stone.
The World Bank said in a report released Thursday that the global economy is undergoing one of the most internationally synchronous episodes of monetary and fiscal policy tightening over the past five decades. With several countries withdrawing monetary and fiscal support to curb the risk of high inflation, the World Bank said that this could have larger impacts than intended, both in tightening financial conditions and in steepening the growth slowdown. It said central banks should coordinate their actions and communicate their policy decisions clearly to reduce the degree of policy tightening needed to achieve desired disinflation.