We all know that fear of recession is lurking around the world post-pandemic. David Doyle, the head of economics at Macquarie Group says as we quote “Our baseline is that Canada will enter a recession in the first quarter of 2023.”
Macquarie Group is an Australia-based global financial services provider. Their estimate is that Canada will face 5% rise in its unemployment rate and an approximately 3% contraction in gross domestic product (GDP) during their predicted recession.
Doyle in an interview with Bloomberg on Thursday said, “We actually think it will be pretty severe in Canada. I think the die has been cast on this front. Because inflation has become so elevated, and unemployment was allowed to fall so low, I think a recession is almost inevitable at this point.”
He also said that Canada’s cooling housing market will play a big part in this slow down of the economy. According to the most recent Statistics Canada data, production from real estate agents and brokers fell 3.4 percent in July, marking the fifth consecutive month of decline.
Cooling of Housing Market Effect
“Typically, housing begins to deteriorate as you approach a recession,” Doyle explained. “We’re seeing plenty of evidence of it.”
In order to combat inflation, the Bank of Canada hiked interest rates to 3.25 percent on September 7. This contributed to the cooling of the housing market. The rise came on the heels of a full percentage point raise in July. This was the greatest single rate increase in Canada since August 1998. After falling below 0.25 percent during the COVID-19 epidemic, the Bank of Canada resumed raising interest rates in March.
The next interest rate rise is largely expected to occur on October 26th, according to economists. Doyle believes it may be the last.
“However, it will likely be six, nine, or twelve months before we see the Bank drop rates again,” Doyle added. “That’s because they’ll want to ensure that inflation is under control.” Doyle sees a silver lining in the impending slump.
“Often, when there is a recession, it is enough to bring inflation back down,” he remarked.
Presented by CTC News
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