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Posthaste: Recession likely to hit soon, with Bank of Canada rate cuts to follow, economists say Back to video

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Canada may not be in a recession right now, but it is likely to enter one very soon and that will prompt the Bank of Canada to cut interest rates, economists at Desjardins Group say.

A recession is expected to hit in the first half of 2024 as the full strength of higher rates weigh on the economy, according to a Jan. 22 note by Desjardins economists Jimmy Jean and Randall Bartlett.

The effects of a slowdown will widely dampen economic activity, the economists said. Canadians can expect declines in investment and exports — brought on in part by a weakening United States economy — along with a rise in the unemployment rate. Consumers trying to make more expensive mortgage payments in a high-interest rate environment are also seen curbing spending, squeezing the economy even more. Added together, that will push the country into recession.

Interest rate cuts will follow shortly thereafter. “Along with the trend decline in inflation, this should prompt rate cuts, likely starting this spring in Canada,” Desjardins said.

But a recession offers no reason to panic: the downturn is likely to be short-lived and mild. “We don’t see reasons to be overly pessimistic about what is happening,” Jean and Bartlett said. And even in the off chance things do take a turn for the worse, the Bank of Canada will able to step in, they said.

Canada’s economy weakened over 2023, but perhaps not enough to be coined a recession. The C.D. Howe Institute, which has become Canada’s unofficial judge determining recession periods, defines the term as a “pronounced, persistent and pervasive decline in economic activity.” The country doesn’t seem to have met that criteria by the end of the third quarter, Desjardins said.

For one thing, gross domestic product was revised upward in the second quarter and the economists think another upward revision to GDP is possible for Q3. (GDP fell 1.1 per cent year over year in the third quarter, Statistics Canada reported.) At the same time, other economic data has been mixed, though it’s mostly trending into weaker territory. Taken together, there’s a chance GDP will have grown slightly in the fourth quarter, the economists said, missing the definition of a recession.

Many economists have been forecasting a strong economic downturn for more than a year now. Desjardins made its first recession call in the middle of 2022, for example. But the downturn was ultimately delayed amid tailwinds from strong population growth, which helped boost consumer spending. Now, the influx in newcomers is expected to slow, and that, combined with the effects of high interest rates on other parts of the economy, points to a short and shallow recession early this year.

Still, it could take some time before experts render a recession verdict, the economists wrote.

“This is not the pandemic when things were screaming obvious, but rather a very complex and highly unusual set of dynamics, playing out in a contest of exceptional uncertainty,” Jean and Bartlett said. “Confidently making a judgment will warrant careful consideration.”

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Union membership in the United States continued a decades-long slide to a record low in 2023, even as unions capitalized on high-profile talks with automakers and actors and won the biggest raises in years.

The union membership rate — the share of wage and salary workers who were members of unions — was 10 per cent last year, just below the 10.1 per cent seen in 2022, according to Bureau of Labor Statistics data released Jan. 23. Bloomberg has more.

• The Bank of Canada will release its latest interest rate decision and publish its quarterly Monetary Policy Report at 9:45 a.m. A press conference will follow at 10:30 a.m. featuring Bank of Canada governor Tiff Macklem and senior deputy governor Carolyn Rogers.
• Former Fox News anchor Tucker Carlson will speak at the Telus Convention Centre in Calgary, and have a conversation with Alberta Premier Danielle Smith.
• Patricia Kosseim, Information and Privacy Commissioner of Ontario, will host a panel discussion in Toronto about the adoption of artificial intelligence technologies in the public sector, with privacy experts from the public sector, academia and advocacy groups.
• Earnings: Tesla Inc., International Business Machines Corp.

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A new year is a good time to figure out what you need to do to put yourself on firmer financial footing, whether that’s a retirement plan, saving for a house or big purchase, or just trying to get ahead as costs and taxes continue to rise. If you’re wondering what to do next, drop us a line at aholloway@postmedia.com with your contact info and the general gist of your problem and we’ll try to find some experts to help you out while writing a story about it (we’ll keep your name out of it, of course).

Today’s Posthaste was written by Victoria Wells, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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