Canada’s recession will hit much faster than expected, warned the country’s oldest bank this morning. In a research note to investors, RBC moved up its forecast for a moderate recession. They attributed this to soaring inflation, causing interest rates to climb very sharply over the past few months. They forecast hundreds of thousands of jobs can be lost in just a few months.
Canada’s Recession Will Be Worse Than Expected
Canada’s recession is forecast to hit a lot sooner than expected, as central banks purge the excess from the economy. RBC is calling a recession hitting in Q1 2023, one quarter earlier than they had previously anticipated. They attribute this to the aggressive monetary policy required to temper out-of-control inflation.
The central bank is currently forecasting the overnight rate will reach a level not seen since the Great Recession. The Bank of Canada (BoC) overnight rate is forecast to hit 4%, and the US Federal Reserve to reach a range of 4.5% and 4.75% by next year.
Policy rates left too low for too long have resulted in soaring inflation that requires very steep rate hikes. The bank warned if inflation remains sticky, they’ll have to pursue even further rate hikes, which will deepen the recession. Deeper than what, you might be asking? Here are some of the numbers the bank shared.
Canada Might Lose 371,000 Jobs By Next Year
Just like cutting rates saved households significant amounts of cash, higher rates will cost households a lot. The bank estimates the average household will see a $3,000 loss in purchasing power by the time this is done. At the same time, the jobless rate will climb to 7% — about 2 points higher than it is today. By our calculations, that means a loss of 371,000 jobs. It’s one of the smaller recessions, but that doesn’t matter if you’re on the receiving end.
“The pain of the upcoming recession won’t be distributed equally among Canadian businesses and households,” said Nathan Janzen, RBC’s assistant chief economist.
He adds, “The manufacturing sector will likely be among the first to pull back while some high-contact service sectors like travel and hospitality could prove more resilient than in a ‘normal’ historical recession.”
Canada’s Recession Can Be Worse If Inflation Doesn’t Cool
RBC warns it can be worse than they’re forecasting if inflation remains sticky, like in the early 80s. “Central banks will be reluctant to throw in the towel on rate hikes before they are confident that inflation will slow sustainably,” he said.
The bank sees the BoC pausing its rate-hike cycle in late 2022, followed by the US Fed at the start of next year. Central banks have committed to tackling inflation, since it’s a more toxic problem than high interest rates. If rates are forced higher, expect an even bigger drop in consumption and a deeper recession, warned the bank.
Utter irresponsible banking sector – let it all burn down and reset. One wonders why so many are discontent when a few at the top are causing all this pain that was avoidable with proper policy and lending standards. Legal vs ethical is a big question. All levels of society should review and ask what they want in a community/country.
No one knows for sure what will happen because the Central Banking Cartel doesn’t know what the hell they’re doing, or at least they’re trying to make the demolition look like incompetence rather than intentional. ‘Moderate’ recession? Good luck with that.
Oh the banks have a pretty good idea based on their models and stats. Cost of loans go up, businesses must make cuts somewhere to offset the interest (bye bye employees).
It will be interesting if businesses suffering from lack of new hires will shell out to keep existing employees via wage increases. This all comes down to disconnect of pay vs cost of goods and services.
This generation demographic shift may help us recover faster as industries are fighting for qualified people.
How come when central banks kept interest rates artificially low, and the housing prices were going sky high, no one complained or cautioned the general public what might happen? That includes: The major banks, Real estate boards, CHMC and all the other pundits. By the way Bank of Canada, Bank of International Settlements (Central Banker to all the Central banks), and the IMF has been warning for some time.
Anyway, if people have not gotten into debt up to their eyeballs, there is nothing to worry, as this is a short phenomenon. Things will get better by the 3rd QTR of next year.
I am an immigrant 80 years old, 50 years in the country, owned, a condo and two different houses from 1975 to 2006. Experienced stagflation, Inflation in the early 1980s, stock market crash in 1987, Housing correction in the early 1990s, and managed to wither all these storms. So, this storm will come to pass as long as people don’t panic. Most people who come into these websites were not even born when I came to Canada. Relax, this will be a learning experience.
Governments still spending money like drunken sailors They will lie about inflation because it’s never going away
I love your comment policy! Cheers for being so direct! 👍
By increasing interest rates you fueling inflation.. get !
Yeah we have high inflation because Canadians have too much money to spend and increase demand, not because there’s supply shortage on many things. Being sarcastic of course.
The truth of the matter is the last 12 years were not indications of real life in the real world. Life became too easy with the availability of free money. People kept purchasing properties because money was cheap and prices kept going up. Now that we are entering a phase of what real life should be, everyone is panicking and blaming the banks and the governments. The key is not to panic and adjust your lifestyles. If you have 3 properties but can really only afford 1, then you are not a victim. If you live in a million dollar home and you are a single income household, maybe you should downsize… There are always solutions to every problem as long as you can acknowledge that food should be your priority. We are a spoiled nation who has not seen war or starvation on our lands for over 200 years and we focus on 1st world issues. Ditch your large SUV, there is nothing wrong with driving a compact.
Transitioning until the cover boils over. Inflation like “this type” with at least 2.5% volatility was never experienced. Many sub economic and sur economic connected issues of our time that no one ever seen. Finance, economic history are gears in a watch important subjects concepts to be taught to our kids and learn by young adults.
Still opportunities always can be found, meanwhile save, reduce, stock food, eliminate superficial, get a third job and weather the storm.
All hocus-pocus from bankers,we had the recession already it was the pandemic we just went through and it’s almost done ,this would be the first recession I’ve been through with such a huge labour shortage now and for the foreseeable future .