Economists are now predicting a smooth landing for the Canadian economy, dispelling fears of a recession this year, despite interest rates reaching a 22-year peak.
According to a recent monthly survey conducted by Bloomberg, 27 economists believe that while the Canadian economy may stall in the latter half of 2023, it will not contract. The median forecast indicates that the Bank of Canada will keep its overnight rate at five per cent until well into the following year, with no plans for rate cuts until April.
This outlook aligns with the Bank of Canada’s own perspective, which suggests that economic growth is stabilizing, albeit with persistent concerns about elevated core inflation. Governor Tiff Macklem stated earlier this month that policymakers are working to strike a balance between the risks of over-tightening and under-tightening, aiming to avoid causing unnecessary hardship for the broader population.
The recent surge in household spending earlier in the year led the central bank to raise rates in June and July, following a brief pause. However, experts anticipate that consumption spending growth will slow down in the coming months as demand for rate-sensitive goods and services weakens and more households renew their mortgages at higher interest rates.
Economists participating in the survey foresee the gross domestic product (GDP) expanding by 0.4 per cent in the third quarter and remaining unchanged in the final quarter. These projections indicate an improvement from the previous month’s survey, which had forecasted a slight contraction in both quarters, technically qualifying as a recession.
In the first quarter, the Canadian economy expanded by 3.1 per cent, and the Bank of Canada predicts a growth rate of 1.5 per cent for the period from April to June.