Canada’s economic downturn will end up being longer though shallower than average, according to Oxford Economics’ Tony Stillo.
“We forecast real GDP will fall 2 per cent peak-to-trough between Q4 2022 and Q3 2023. This would be one quarter longer but much shallower than the average 4 per cent drop during Canadian recessions in the past 50 years.
“Moreover, even if we exclude the 2020 coronavirus pandemic-driven recession, GDP fell by an average 2.5 per cent from peak-to-trough over three quarters during Canada’s recessions since 1970.”
Stillo said the unique nature of the “moderate recession we are forecasting” is the result of pandemic-related changes to patterns in consumer and firm behaviour, global supply chain disruptions, and the prevailing geopolitical environment, notably the Russia-Ukraine war.
“We anticipate the [Bank of Canada] will deliver another 50bps hike in December to bring the policy rate to 4.25 per cent, the likely peak for this cycle.
“However, unlike most prior downturns, we believe the BoC will hold the policy rate in restrictive territory despite the coming recession and not begin to ease until early 2024 – once it’s convinced that inflation is on a sustainable path back to its 2 per cent target.”