Canadian Recession to Arrive Earlier Than Expected Why ?

10 Facts and Figures of Canadian Recession to Arrive Earlier
10 Facts and Figures of Recession to Arrive Earlier Than Expected in Canada

When The Canadian Recession will Enter in Canada 2023?

The Canadian government has released its 2022 Fall Economic Statement, warning that the Canadian Recession in the country is likely to enter a mild recession in the first quarter of 2023.

What is Downturn Scenario in Canadian Recession?

The finance ministry has drawn up a “downturn scenario” that takes into account the impact of more sustained inflationary pressures and further tightening of monetary policy, which will lead to a “hard landing” in the economy, Xinhua said, citing the statement.

Under the downward trend scenario, CPI inflation will remain above 3 percent until the first quarter of 2024, about six months longer than in the September 2022 survey, before reaching 2 percent by the end of 2024.

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In response, short-term interest rates will reach 4.5 percent in the first half of 2023 and are 0.7 percentage points higher over the entire forecast horizon. As a result, Canada enters a mild recession in the first quarter of 2023. For the entire year 2023, real GDP will decrease by 0.9 percent.

“This is a challenging time for millions of Canadians. It is important that I be honest with Canadians about the challenges ahead,” Deputy Prime Minister and Finance Minister Chrystia Freeland said in Parliament on Thursday. “Interest rates are rising as the central bank steps in to fight inflation. That means our economy is slowing down.”

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The Treasury Department surveyed a group of private sector economists in early September 2022. The average of private sector forecasts has been used as a basis for economic and fiscal planning since 1994. Private sector economists have forecast real GDP growth for next year just above zero for several quarters.

Since the start of the private sector survey in early September, global economic and financial conditions have continued to deteriorate and the balance of risks to the growth outlook is tilted to the downside, with growth more likely to be below the survey level, the statement said. .

Will Canada go into recession in 2023?

Canadian Recession – Canada to enter brief technical recession, economists say Back to video. Gross domestic product is expected to post back-to-back quarterly declines in early 2023, according to a Bloomberg survey of 26 economists conducted between Nov. 4 and Nov. 11.

When was the last recession in Canada?

The last Recession in Canada was in Mid 2008-09. The word “recession” probably brings to mind the upheaval of 2008-09, when the global financial crisis triggered a seven-month recession in Canada and a protracted recovery, rather than the short-term decline of the early days of the pandemic. 10 Facts and Figures of Canadian Recession to Arrive Earlier.

Will Canada fall into Recession in 2023?

In previous work, we predicted a slight Recession in the Canadian economy in 2023. We now believe that this decline will come as early as the first quarter of next year. Higher prices and interest rates will reduce the purchasing power of the average household by $3,000, putting a strain on purchases of goods. 10 Facts and Figures of Canadian Recession to Arrive Earlier

Why Canadian Recession will Arrive Sooner than Expected?

Reasons of Canadian Recession

  • Inflation, labor shortages and rising interest rates will drag on Canadian growth, pushing the economy into a slight contraction in 2023.
  • The unemployment rate will rise next year, but to less severe levels than in previous downturns.
  • While higher rates will curb growth, they are necessary to tame inflation and cool an overheating economy.
  • Household spending, which accelerated due to pandemic restrictions, will slow as households are hit by higher prices, interest rates and unemployment.
  • Canadian Recession Bottom Line: This Canadian Recession will be mild and short-lived by historical standards—and can be reversed once inflation stabilizes enough for central banks to cut rates.

Economic Pressures are Looming in Canada

When you’re at the top of a hill, the only way to go is down. Canada’s economic growth has shot up against all pressures after pandemic shutdowns. But historic labor pressures, soaring food and energy prices, and rising interest rates are now looming. These pressures are likely to push the economy into a slight contraction in 2023. 10 Facts and Figures of Canadian Recession to Arrive Earlier

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Canadians continue to support the recovery in the travel and hospitality industry. And higher global commodity prices have boosted the mining sector. But companies are trying to find the workers they need to expand production. There were nearly 70% more job openings in June than there were before the pandemic — and job seekers had to compete for nearly 9% fewer unemployed workers. Meanwhile, skyrocketing prices are reducing Canadians’ purchasing power at the pump and in the grocery store.

Will Canadian Recession be as severe as 2008 Recession?

Both in Canada and abroad, central banks have been aggressively raising rates to slow household demand and fight inflation. In Canada, much of the price pressure is coming from beyond our borders as energy and agricultural prices surge on supply chain ripples stemming in part from the Ukraine war. 10 Facts and Figures of Canadian Recession to Arrive Earlier

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Strong domestic demand for housing and services has intensified these pressures, and the labor crisis is driving up wages. Canada’s unemployment rate is now almost a full percentage point below RBC’s assumption of its long-term neutral (non-inflationary) level. As the economy contracts next year, that rate is likely to rise another 1.5 percentage points to 6.6%.

These job losses come at a time when Canadians are already struggling with higher prices and debt servicing costs (factors that have hit lower-income households the hardest). Still, by historical standards, we expect the slowdown to be modest. The unemployment rate of 6.6% would still be more than 2 percentage points below the peak of 8.7% in the 2008/09 Canadian Recession.

Higher Rates are Key to Maintaining Inflation Expectations in Canadain Recession

Although higher rates will technically push Canada into contraction, the Bank of Canada now has no choice but to act. Inflation has been too strong for too long and is starting to creep into the longer-term expectations of businesses and consumers. Higher inflation expectations can become self-fulfilling, making it more likely that businesses will pass on cost increases and that consumers will be more willing to pay for them (and demand higher wages).

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A scenario in which Canadians believe inflation will be well outside the bank’s target range of 1% to 3% could reverse nearly three decades of remarkably effective inflation targeting. It could also require much larger and more damaging interest rate hikes to re-anchor prices. 10 Facts and Figures of Canadian Recession to Arrive Earlier

Higher 5-year inflation expectations caused the US Fed’s decision to raise rates by 75 basis points in June. With the BoC facing a similar increase, it is likely that July 13th will see at least as large an increase in Canada. And neither bank is done. The US Fed and BoC are expected to raise rates to 3.5% and 3.25% by the end of 2022, respectively. This is high enough to significantly limit growth, especially in Canada, where household debt is very high.

Slowing Growth Abroad will Also Spill Over into Canadaian Recession

Even without a rate hike, labor shortages in Canada and abroad are hampering expansion. The US economy tanked in Q1, and while we see a small pick-up in Q2, it wouldn’t take a big forecast miss to have a second quarter of negative growth. 10 Facts and Figures of Canadian Recession to Arrive Earlier

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We expect the US unemployment rate to rise to 4% by the end of the year and climb to nearly 5% in 2023. Meanwhile, emerging markets will struggle with higher food and energy prices, increased borrowing costs and a strong US dollar. And pandemic disruptions continue to limit growth in China. 10 Facts and Figures of Canadian Recession to Arrive Earlier

This slowdown in foreign demand will drag on Canadian growth.

A boom in household spending will be felt later in Canadain Recession 2023

Canadian households have saved more than $300 billion since the end of 2019. This increases spending – and increases inflationary pressure. 10 Facts and Figures of Canadian Recession to Arrive Earlier

But the lion’s share of savings remains with higher-income households, leaving lower-income groups more vulnerable to rising rates and prices. Housing markets softened dramatically, prices swung from record highs over the winter to declines in the spring. We expect home prices to fall by 10% next year, which will shave more than $800 billion from household net worth.

That would only partially reverse the $2.4 trillion increase in equity from 2019. Still, it will leave Canadians feeling “less wealthy,” prompting them to spend less in the housing market and elsewhere. 10 Facts and Figures of Canadian Recession to Arrive Earlier

Rate hikes will reverse, but not until inflation cools

Global inflationary pressures may peak soon. Shipping costs have dropped. And exceptionally strong demand for goods — which has caused supply chain problems and higher input costs — is easing as consumers in Canada and abroad shift spending to services that were unavailable during pandemic shutdowns. Much of the rise in wheat prices following Russia’s invasion of Ukraine has been reversed.

Prices are still rising too fast and inflation will not slow down sustainably until demand falls. But as soon as that happens, central banks will lower interest rates again. Meanwhile, the slowdown in Canada and abroad will help moderate inflation. Canada’s 6.6% unemployment rate next year would not be far above long-term “full employment” levels. We don’t think it will take long to eliminate this weakness in 2024 and beyond.

As interest rates rise, there are signs of tension

Cracks are forming in the Canadian economy. Housing markets have cooled sharply. Central banks are in the midst of one of the most aggressive rate-hiking cycles in history. And while labor markets remain strong, employment has fallen by 92,000 over the past four months.

And the pressure keeps building. While the Bank of Canada is expected to raise the overnight rate to 4%, the US Federal Reserve is likely to raise it to 4.5% to 4.75% by early 2023. These factors will hasten the coming of a Canadian Recession – which we now expect. it will start in the first quarter of 2023 (a quarter earlier than our previous projection).

What happens next will depend on a number of factors, the most significant of which is an increase in interest rates. Central banks will not hesitate to throw in the towel on rate hikes until they are confident that inflation will slow down sustainably.

We expect the Bank of Canada to pause the rate hike cycle in late 2022 and then the Fed in early 2023. However, this is dependent on easing inflationary pressures. Tougher inflation trends in the coming months could still trigger further increases and potentially a larger decline in household consumption and a deeper Canadian Recession.

Jobs will be lost and lower income Canadian Recession will be the hardest hit

Currently, the labor market is the tightest it has been in decades. A surplus of jobs and a shortage of workers will protect against a large increase in unemployment in the near future. The unemployment rate will continue to rise, but we expect longer job search times for the unemployed and shorter hours for the employed first.

More outright layoffs will follow, and we expect the weakening economy to push the unemployment rate near 7% by the end of 2023 — up nearly 2 percentage points from a low of 4.9% in June and July. This is slightly higher than our previous forecast, but still low compared to previous declines.

However, households are already feeling the pressure of economic headwinds. Rising inflation and higher borrowing and debt service costs are expected to reduce average purchasing power by nearly $3,000 in 2023. And while tight labor markets have boosted wages, it hasn’t been enough to offset those losses. This will weigh hardest on Canadians at the lower end of the wealth spectrum, especially those whose disposable income has eroded along with pandemic support.

Nor will the pain of the coming Canadian Recession be shared equally among Canadian businesses. Housing markets have already corrected lower. And the manufacturing sector looks set to moderate as spending on physical goods cools, particularly in the US, the world’s largest consumer market and the destination for 75% of Canada’s exports (65% of which are “manufactured” products). In Canada, despite still strong manufacturing performance, surveys have already indicated deteriorating sentiment among businesses in the sector.

Even if they don’t escape unscathed, the travel and hospitality sectors — among the hardest hit by COVID-19 restrictions — could be more resilient than in past downturns. Resilience in the broader service sector compared to goods-producing industries such as manufacturing would not be a new phenomenon. Public sector jobs, such as teachers and health workers, tend to decline less (if at all) in recessions.

This also applies to jobs in professional, scientific and technical services – the largest source of employment growth from pre-pandemic levels (+17%). But in the lodging and dining sectors, where recessions tend to have a more significant impact on spending, job losses tend to be much smaller than in manufacturing. And this time after two years of pandemic lockdowns, demand for travel and hospitality services remains. This will limit the decline in these sectors in 2023.

Tourism and hospitality businesses are likely to be among the most hesitant to make layoffs. Employment in accommodation and catering services was still 15% lower in September than before the pandemic. That’s three times the average decline of the 1980s Canadian Recession. This means that businesses are already employed at a lower level than you would expect in a major economic downturn. As a result, he will be less likely than “normal” to resort to layoffs.

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