CANADA’S RECESSION WILL HIT SOONER THAN EXPECTED, OVER 370K JOB LOSSES EXPECTED: RBC
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.
Story by: Better Dwelling