Canada is heading for a moderate recession, but the economic downturn is expected to be short-lived compared to previous recessions, predicted by economists at the Royal Bank of Canada.
The Bank of Canada surged to 7.7% in May, the fastest rise in nearly 40 years, and a major night this year to counter the surge in inflation far beyond economists' expectations. We are actively raising interest rates.
With the Central Bank maintaining its 2% target, more aggressive moves are expected from this month onwards to reduce inflation by 5.7%. Economists predict a 75 basis point increase in July, reflecting the movement of the US Federal Reserve in June, with an additional 50 basis point increase in September. A Reuters study suggests.
A powerful strategy, in step with the US federal government, has raised concerns about Canada's heading into a recession. Due to the high borrowing costs, Canadian households have a particularly high debt. Experts say that the low-income group is most exposed to the double risk of inflation and rising interest rates.
According to economists, much of the inflationary pressure comes from outside Canada, and Russia's invasion of Ukraine has led to soaring energy and food prices against the backdrop of supply chain bottlenecks.
"But historic labor pressures, rising food and energy prices, and rising interest rates are imminent. These pressures will drive the economy into a gradual contraction in 2023. It's possible ... Still, historical standards slow down modestly. "
Janzen and Fan, active activity within the travel and hospitality sector and rising commodity prices helped the recovery. However, he said that the shortage of workers is hindering business expansion. They said there were 70% more jobs last month compared to the same period before the pandemic, but employers were competing for almost 9% less workers in the employment market.
"The soaring prices are reducing the purchasing power of Canadians in pumps and grocery stores," they said.
"As the economic contraction progresses next year, the [unemployment] rate could rise another 1.5 points to 6.6%. These unemployments are already the largest for low-income households for Canadians. It happens when we're working on higher prices and debt repayment costs, which are the damaging factors. ”
Meanwhile, on Tuesday, the Canadian Center for Policy Alternatives (CCPA) announced. In the last 60 years, it has reportedly reduced inflation by 5.7 times, three times as much as the Bank of Canada. The recession continued due to the rapid and aggressive rise in interest rates. However, RBCs and other economists say there are few options available to central banks to deal with inflation.
"Bank of Canada currently has little choice but to act," writes Jazen and Fan.
"Inflation is too strong because it is too long and is starting to sneak up on long-term business and consumer expectations. Higher inflation expectations can be self-fulfilling and companies are increasing costs. Will be more likely to be passed on and consumers will be more willing to pay for them. ”
Even without fluctuations in interest rates, slowing growth and foreign demand will weigh on Canada.
Despite these concerns, RBC believes the recession is not as serious as the previous recession.
"Global inflationary pressures can peak soon," economists predict.
"Prices are still rising rapidly and inflation will not slow down continuously until demand declines, but if that happens, the central bank will ease interest rates again ... I don't think it will take much time to eliminate that weakness after 2024. "
Graphic data journalist Deena Zaidi