Noah Zivitz, BNN Bloomberg
RBC predicts a recession for Canada
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The Royal Bank of Canada predicts that the country will likely suffer a “moderate and short-term” recession next year as the economy succumbs to pressure from stubborn inflation, higher rates and labor market constraints. . “This recession will be moderate and short-lived by historical standards, and can be reversed once inflation settles down enough for central banks to lower rates,” economists Nathan Janzen and Claire Fan wrote in their report on Thursday. RBC’s outlook includes consecutive annualized half-percentage point contractions in the middle quarters of next year, before returning to 0.2% growth in the fourth quarter of 2023. However, Janzen and Fan warned that the Bank of Canada can’t afford to take its foot off the gas in the fight against inflation. ”While higher rates will technically push Canada into a contraction, now the Bank of Canada has no choice but to act. .. A scenario in which Canadians believe inflation will far exceed the bank’s target range of one to three per cent could be reversed. nearly three decades of exceptionally effective inflation targeting policy. It could also require much larger and more damaging interest rate hikes to re-anchor prices, “they wrote. The Bank of Canada is expected to raise its target for the one-day interest rate to 2 , 25% from 1.5% at its policy meeting next week.It would be the fourth time the rate has risen this year as the central bank tries to fight inflation as close as possible to 40 years of 7.7% RBC expects consumer price index to rise at least 5.0 per cent during first quarter 2023 and finally return to Bank of Canada target of one to three percent during the third quarter of next year, but not enough.achieving the 2.0% target.Although a recession appears to be approaching, RBC economists said they expect the rate to rise. unemployment will only increase modestly compared to previous falls, as companies are already struggling amid a “historic labor crunch.” This was revealed earlier this week in the Bank of Canada’s latest business prospect survey, which showed that four out of ten respondents said their company was facing a labor shortage. , and 68% said restrictive working conditions were worse than a year earlier. These dynamics force employers to pay more for talent: 73% of respondents said they expect to pay higher salaries over the next year, with an average salary increase of 5.8%. With unemployment at an all-time low of 5.1% in May, RBC estimates the rate will rise to 6.6% next year as the economic downturn occurs. This one-and-a-half percentage point increase would be small by historical standards: RBC analyzed past recessions and found that the unemployment rate rose just 0.6 percent (in 1951-53) to seven. points. increase in 2019-20).