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Economic data keeps surprising, but recession forecast hasn’t gone away

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Canada’s economy is strong. Jobs are being added in bulk. GDP is expanding more than almost anyone expected. Still, if you ask around, many Canadians think their country is in or about to go into recession.

Even forecasters are a little surprised by the resilience of the Canadian economy.

“Most economists are a little baffled by the fact that they’ve seen interest rate rises so rapid and significant without much impact on the economy,” said Pedro Antunes, chief economist at the Canadian Congress Committee. said.

The Bank of Canada has raised interest rates by 425 basis points (4.25 percentage points) since this time last year. These rate hikes were intended to slow the economy down. The theory is that slowing the economy down enough will make people buy less. If you buy less stuff, the price should go down.

Inflation peaked at 8.1% in June. Since then, year-on-year inflation has fallen steadily. Economists said all these rate hikes would significantly slow the economy.

That’s not to say it keeps happening, but recession forecasts haven’t gone away entirely.

WATCH | Canada’s latest job numbers beat expectations.

Canadian job market beats expectations in March

The Canadian job market once again outperformed expectations, adding jobs and boosting wages for the seventh straight month. The economy he added in March he added 35,000 jobs. This is almost three times what we expected.

jobs, GDP growth

Even the Bank of Canada says the fight to bring inflation under control will not be easy or painless.

“The unemployment rate will go up,” Bank of Canada Governor Tiff Mackrem said in an interview with the CBC last fall. “I’m not talking about the high unemployment rate we’ve seen in past recessions, but it will go up.”

Since then, Canada has added over 270,000 jobs. The unemployment rate remains at or near historic lows.

Wages are rising. Total working hours increased.

Meanwhile, GDP was well above expectations in January, with preliminary estimates from Statistics Canada pointing to another healthy gain in February.


Derek Holt, vice president of Scotiabank Economics, wrote a customer memo on Thursday titled “Canada’s job juggernaut defies the bears.”

Holt wrote that GDP growth in the first quarter of this year “is likely to be at least 3-4%” compared to previous years.

This is nothing like a recession, well above the 0.5% growth projected by the Bank of Canada.

Still, both consumers and businesses surveyed by the Bank of Canada indicate they are very pessimistic about the state of the economy. In two of his key surveys released last week, central banks found people preparing for a recession.

The Bank of Canada said, “Most respondents expect a recession within the next 12 months.” That said, people are very uncertain about the economic outlook. , some consumers are curbing spending growth and increasing their savings.”

Population growth

So what’s behind this unexpected burst of growth?

One important thing economists point out is the historic level of immigration Canada experienced in 2022. Canada increased its population by more than one million people last year.

This means that a million new people are filling long-standing vacancies, and another million are buying things, expanding the total pool of economic activity. The surge in immigration has led economists like BMO’s Doug Porter to say they should reconsider what they see as “normal” levels of job creation.

“The level of what is considered a normal month in Canadian employment is definitely rising,” he told CBC News. “Economists thought 15,000 or so was a normal month, but now I think it’s 25,000. That means we need 25,000 new jobs to keep the unemployment rate from rising.”

But even with all the resilience, the risks to the economy have not suddenly disappeared.

Watch | Population Growth Brings Richer and Diverse Economies: Professor:

Population growth is good for Canada’s economy, experts say

Canada’s population will grow by a record 1 million in 2022. This is almost entirely due to a surge in immigrants and temporary residents. Such growth could lead to a richer and more diverse economy, said Matti Siemiatycki, director of the Institute of Infrastructure at the University of Toronto.

inflation problem

The Bank of Canada may have put a temporary halt to further rate hikes, mainly because the full impact of the rate hike has yet to be seen.

“I don’t think we’ve had the full impact of rising interest rates yet,” Antunes said. “Most Canadian households are still paying off their mortgages for five years, so it will take time for the full impact to be felt.”

Antunes says the impact will be felt more and more as these mortgage holders are forced to renew at much higher interest rates.

After all, inflation remains the largest and most important feature of the economic climate. Its amazing resilience is just a footnote if year-over-year continues to slow.

But CIBC chief economist Avery Shenfeld says the Bank of Canada will have to make tough decisions if inflation remains high.

“In this turbulent world, good news for the economy is not what we really want,” Schoenfeld said in a note to clients.

“If the central bank’s target slowdown doesn’t materialize, we could be forced to raise rates further and risk a hard landing,” he said.

A hard landing is what economists call a recession, where jobs are lost and the economy shrinks. Exactly what I expected for months.

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