High interest rates weigh heavily, recession expected to hit Canada

Experts say the Canadian economy is headed for an early recession, which will aid the Bank of Canada (BoC) in its efforts to return inflation to its 2% target.

Canada's economy could face recession this year. (Source: Vietstock)

A recession is expected to hit in the first half of 2024 as the full force of higher interest rates weighs on the economy, according to a report by economists Jimmy Jean and Randall Bartlett of financial services firm Desjardins.

Although the economy has avoided the definition of a technical recession (two consecutive quarters of negative GDP growth), growth has essentially stalled.

The country's third-quarter 2023 gross domestic product (GDP) actually turned negative after being revised upward in the previous quarter from negative to +0.3%.

"While it is not certain that the Canadian economy will fall into recession in 2023, it will still happen early this year. The recession may be short-lived, but it will be broad-based, weighed down by consumption, investment and trade," the report said.

The impact of a recession will be a significant reduction in economic activity. Canadians may notice a decline in investment and exports, and an increase in unemployment.

Consumers are struggling to pay off mortgages with higher interest rates, causing them to curb spending and slowing the economy.

All these developments will force the BoC to adjust with a rate cut that could come in the second half of this year.

In another report, economic analysis and forecasting agency Oxford Economics said that Canada is in the middle of a recession and the country's economy will decline more severely in 2024.

This report by two experts Tony Stillo and Cassidy Rheaume argues that the Canadian economy fell into recession in the third quarter of 2023 and will continue into this year, with the full impact of past interest rate hikes.

Cutbacks in consumer spending and weak growth in housing transactions will be the main drivers behind Canada's economic downturn.

Rising debt servicing costs from increasingly maturing mortgages will push households into debt reduction, while real disposable incomes will come under pressure from rising prices, slower wage growth and rising job losses.

Source: https://baoquocte.vn/suc-manh-lai-suat-cao-dang-de-nang-suy-thoai-kinh-te-du-kien-se-cap-ben-canada-258706.html