World News | Bank of Canada sees short-lived recession in 2023

TORONTO, July 7 (AP) Canada is headed for a recession in 2023, but it will be short-lived and not as severe as previous downturns, a Royal Bank of Canada report said Thursday.

RBC economists say soaring food and energy prices, rising interest rates and a persistent labour shortage will push the economy into a “moderate contraction” next year.

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RBC economist Nathan Janzen said in an interview: “We expect growth to moderate but remain positive by the end of the year, and then we expect two quarters of decline in GDP in the second and third quarters of 2023.” This is more likely to be a base case assumption. “

Unemployment in Canada will also rise slowly, before rising slightly into next year, he said.

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RBC, one of the country’s largest banks, said it expects the unemployment rate to hit 6.6 per cent in 2023, but doesn’t think it will take long to reverse the weakness in 2024 and beyond.

The unemployment rate fell to 5.1% in May, the lowest level on record.

“The labor market will continue to be fairly firm in the short term, which is why we don’t expect a downturn until next year,” Jenzen said. “While the pace of job growth will start to slow, it’s more about limited labor supply than limited demand.”

Meanwhile, Janzen said wage growth will accelerate for the rest of the year as businesses look to fill job vacancies and retain talent, while consumers continue to face high prices.

Household spending accelerated by the COVID-19 pandemic lockdown will slow as rising prices, interest rates and unemployment hit households, the report added.

RBC also expects house prices to fall by 10 per cent over the next year, reducing household net worth by more than C$800 billion ($616 billion).

RBC said it could raise interest rates by three-quarters next week, in line with the Fed’s move last month.

The Bank of Canada is likely to raise rates by a similar amount in September, Janzen said, and ultimately expects the central bank to raise its key policy rate to 3.25% by the end of the year.

The central bank raised its key interest rate by half a percentage point to 1.50% in June in an effort to rein in soaring inflation. (Associated Press)

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