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Recession tracker: Major calls from economists on Canada's growth path

TORONTO, ON- MARCH 9  -  All the world markets including the Toronto Stock Exchange (TSX) suffered huge losses at concerns over COVID-19 (coronavirus) begin to increase  in Toronto. March 9, 2020.        (Steve Russell/Toronto Star via Getty Images)
Bay Street economists are placing their bets on whether or not the Canadian economy is headed for a recession. (Steve Russell/Toronto Star via Getty Images) (Steve Russell via Getty Images)

Higher borrowing rates, a relentless surge in the cost of living, a downturn in the housing market and a softening jobs market have Canada wondering whether the economy is headed for a recession.

Here's where some Bay Street and other economists stand on the fate of Canada's economy:

Calling for a recession

BMO Economics

BMO Capital Markets expects a "moderate and short-lived" recession in Canada through the first half of 2023 as a handful of factors weigh on the economy. A slowdown in U.S. growth, higher interest rates, the downturn in financial markets and a further correction in home prices lay the groundwork for a contraction, BMO says in a client note.

The tight labour market is likely also in for an adjustment, with BMO expecting the unemployment rate to hit 6.5 per cent, from the current 5.4 per cent. Rate cuts are unlikely until early 2024, the bank said.


- As of Oct. 5, 2022

RBC Economics

RBC recently moved up its recession forecast and now expects a "moderate" contraction in the first half of 2023 as the high cost of living and rising borrowing rates take a toll on consumer spending and the housing market. Households could see their purchasing power reduced by $3,000 (or about 3% of annualized household disposable income over the first half of this year) in 2023 as sticky inflation offsets any meaningful gains in wages, the bank estimates.

"We expect the Bank of Canada to pause its rate-hiking cycle in late-2022 followed by the Fed in early 2023. But that's contingent on inflation pressures easing. More stubborn inflation trends over the coming months could yet prompt additional hikes, and a potentially larger decline in household consumption and a deeper recession," RBC said.

- As of Oct. 12, 2022


Canada is indeed headed for a recession, but it will come later than most people think, economist Veronica Clark said. “We expect a more widespread slowdown in activity in Canada into next year with a contraction in GDP in the second half of next year,” she said in a note to clients, with higher rates and a slowing U.S. economy being the main drags on growth. Most other firms that are calling for a recession see it happening in the first half of 2023.

- As of Oct. 28, 2022


Canada is in for a recession in "early 2023," Desjardins confirmed in an email to Yahoo Finance Canada. Separately, the firm says in a client note that the Bank of Canada is aware of the clear trade-offs in rapidly hiking its key lending rate. "Policymakers are willing to risk a mild near-term recession rather than allow high inflation to become entrenched, as that would eventually necessitate a more severe downturn."

- As of Sept. 23, 2022

Scotiabank Economics

Economists at Bank of Nova Scotia see the economy entering a technical recession, or two straight quarters of negative growth, in the first half of 2023. "Though we now expect what might be called a technical recession in Canada, we believe the economy will essentially stall in the first half of 2023. The decline in economic activity is likely to be minor and short-lived owing to the underlying resilience of the economy," the bank said in a client note. GDP growth is expected to slow to 0.6 per cent for next year overall, from 3.2 per cent this year.

Lower commodity prices, more uncertainty, stock market declines, higher borrowing rates and a weak U.S. economy will all weigh on Canada.

- As of Oct. 17, 2022

Capital Economics

Capital Economics is also on the list of firms calling for a recession in the first half of next year. The firm says sticky inflation is weighing on consumer spending and inflation expectations are becoming more embedded as prices remain resilient despite higher interest rates. The housing market downturn also won't bode well for the economy. The firm hiked its forecast for the Bank of Canada's benchmark rate to now hit 4.75 per cent early next year.

- As of Oct. 21, 2022

Not using the "R" word

TD Economics

Despite the odds being stacked against the domestic economy, TD Economics still sees growth in GDP ahead, albeit at a slower pace. The bank is forecasting a 0.6 per cent and 0.3 per cent expansion for the first and second quarters next year, respectively. Higher rates and inflation will weigh on households, but TD says consumer spending has increased since COVID-related restrictions were lifted, and that elevated commodity prices will help boost the economy.

- as of Sept. 20, 2022

CIBC Capital Markets

The Canadian economy will kick off the new year with a slight contraction, according to a note from CIBC Capital Markets. The economy will shrink 0.2 per cent in the first quarter before rebounding to a tepid 0.6 per cent growth in the second quarter of next year, the bank predicts. The effects won't be felt evenly across the country though. Ontario and British Columbia. will bear the brunt of the impact because of their reliance on the real estate sector and high levels of household debt.

Quebec will also struggle with growth because of its tight labour market, CIBC says. Meanwhile, Alberta is expected to benefit from higher commodity prices and Atlantic Canada will get a boost from an influx of international and interprovincial migration.

- as of Oct. 20, 2022

National Bank Financial Markets

National Bank Financial Markets forecasts a small 0.2 per cent GDP contraction in the first quarter, followed by 0.9 per cent growth in the following quarter. In a client note, the bank says Canada was doing "so far so good" in avoiding a hard landing for the economy and that key indicators like inflation were moving in the right direction. Overall for 2023 though, National lowered its GDP forecast to a meagre 0.7 per cent.

- as of Oct. 2022

Bank of Canada

The central bank lowered its growth forecasts amid a steep decline in housing activity, a weakening labour market and pullback in consumer spending. The Bank did not commit to a recession outright, but says GDP growth through the end of this year and into 2023 will likely slow to between zero and 0.5 per cent, where "a couple of quarters with growth slightly below zero is just as likely as a couple of quarters with small positive growth."

- as of Oct. 26, 2022

International Monetary Fund

The International Monetary Fund expects Canadian economic growth to slow to 1.5 per cent next year, but warns the risks are skewed to the downside. Persistent inflation and a bigger-than-expected drag from the U.S. economy could mean a "substantially worse" outlook for Canada. The IMF adds that it sees the unemployment rate rising to six per cent and home prices erasing their pandemic gains. "A mild recession could easily emerge, and the historical distribution of risks suggests a roughly 10 per cent chance that the economy would contract for 2023 as a whole," the IMF said.

- as of Oct. 12, 2022

Michelle Zadikian is a senior reporter at Yahoo Finance Canada. Follow her on Twitter @m_zadikian.

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