Canada’s economy is headed for a “mild recession” early next year, Desjardins economists expect, as rate hikes to curb inflation and “signs of a slowdown” in the global economy mount, according to the United States.
Posted at 5:06 p.m
In their outlook update released on Thursday, Desjardins economists now say they expect Canada’s economy to grow by just 0.3% in real terms next year.
If true, it would be a significant deceleration near stagnation after a 2022 forecast of around 3.4% annual growth.
The Canadian economy is not immune to global trends. Real GDP growth in several countries has already been revised downwards for 2022 and in particular for 2023. This applies in particular to the United States, where real GDP has already declined for two consecutive quarters, and certain countries in the euro zone, where the consequences of the war have been felt in Ukraine and the rise in prices is being felt strongly.
Excerpt from the Desjardins economists’ outlook update
Desjardin’s economists point out that major central banks, including the Bank of Canada, “have aggressively raised interest rates to control inflation. Interest rate sensitive sectors are particularly affected, particularly the housing market.”
As such, they forecast that “the Canadian economy is now forecast to enter a mild recession in early 2023. Real GDP growth is expected to slow and contract in the first two quarters of 2023.”
On the positive side, “given the very favorable starting position for the labor market and the likelihood that the Bank of Canada will start cutting interest rates in the second half of the year, this slowdown in economic activity should be short-lived.” 2023”.
And in Quebec?
“After an excellent start to the year, there are increasing signs that Quebec’s economy is running out of steam,” note Desjardins economists.
“Quebec, however, should do fairly well compared to the other major provinces because of certain favorable factors.”
As a result, Desjardins economists expect real GDP growth in Quebec to slow to 0.5% in 2023, down from 3.7% for all of 2022.
In comparison, real GDP growth in Ontario is only forecast at 0.1% in 2023, a significant slowdown after 2022 from around 3.4% in the final calculation.
What are these favorable elements in Quebec compared to the other provinces?
First, according to Desjardins economists, “Quebec’s labor market is among the tightest in Canada, which is conducive to stronger wage growth. In addition, employers can have an incentive to keep as many employees as possible if they only expect a short economic downturn.”
Second, “Quebec’s savings rate is the highest in Canada, giving households plenty of room to absorb increases in the cost of living and interest rates.”
Finally, “housing affordability has deteriorated less in Quebec than elsewhere, and the housing market correction should therefore be less abrupt than in Ontario and British Columbia.”
Highlights of Desjardins economic forecasts
Real GDP growth
- in Quebec: 0.5% in 2023, down from 3.7% in 2022
- in Canada: 0.3% in 2023, down from 3.4% in 2022
- in Ontario: 0.1% in 2023, down from 3.2% in 2022
- in the United States: 0.4% in 2023, down from 1.6% in 2022
- in Quebec: 0.6% in 2023, down from 2.6% in 2022
- in Canada: 0.7% in 2023, down from 3.7% in 2022
- in Ontario: 0.6% in 2023, down from 4.6% in 2022
- in the United States: 0.8% in 2023, down from 4.1% in 2022
- in Quebec: 5.2% in 2023, down from 4.4% in 2022
- in Canada: 6.2% in 2023, down from 5.3% in 2022
- in Ontario: 6.7% in 2023, down from 5.6% in 2022
- in the United States: 4.5% in 2023, down from 3.6% in 2022
Source: Institute for Economic Studies, Desjardins