Royal Bank of Canada economists are expecting a recession in the Canadian economy during the second and third quarters of the year, according to a report on Canada鈥檚 economic outlook that came out this week.
Their prediction puts a more specific timeline on , even though economic growth 鈥渉as been more resilient than feared in the wake of aggressive interest rate increases鈥� that began last year.
The economists said higher central bank interest rates will continue to impact the economy in 2023, weighing on household purchasing power and the housing market. At the same time, they said the global manufacturing outlook has softened and eased supply chain disruptions to help slow inflation.
鈥淎gainst that backdrop, the most likely scenario is still that the U.S. and Canadian economies will both enter mild recessions over the middle-quarters of 2023,鈥� the report said.
MILD RECESSION, BUMPY LANDING
RBC said it expects any recession to 鈥渟it firmly on the 鈥榤ild鈥� side of historical downturns,鈥� but the economy won鈥檛 avoid a bumpy landing entirely.
It might be possible for consumer spending to be less sensitive to interest rates than expected, the report said, but that would keep inflation pressures sticky and lead to higher interest rates. Those higher rates would in turn cut into household purchasing power later on, 鈥渄elaying but not preventing a downturn,鈥� the report said.
The economists said consumer demand needs to soften for inflation to reach the central bank鈥檚 target two per cent rate.
鈥淭he alternative to the relatively mild 鈥榖umpy,鈥� economic downturn we expect in 2023 could still look more like a crash landing down the road if substantially higher interest rates, and a larger pullback in economic activity, is required to get inflation fully back under control,鈥� the report said.
SLOWER GROWTH IN MOST PROVINCES
鈥淣o parts of the country will be sheltered from the stiffer economic headwinds,鈥� RBC鈥檚 report said, predicting materially slower growth in all , which is benefiting from accelerating offshore oil production.
The oil-producing provinces of Saskatchewan, Alberta and Newfoundland and Labrador are expected to come out 鈥渁head of the pack鈥� largely thanks to strong commodity prices.
Outlooks are worse in British Columbia, Ontario and Quebec, where higher household debt service costs and corrections in the housing markets are having a bigger economic impact.
Atlantic Canada, meanwhile, is growing faster than the national average as it benefits from high population growth and residential investment.
