“Is Canada already in recession? It seems that some economists believe so. According to a team at Oxford Economics led by Tony Stillo, the recession could have started in Canada in the third quarter of 2023 and is anticipated to continue until the second quarter of 2024. They predict that the economy will fall well below the consensus view and will perform worse than other advanced economies.
Moderate Recession and Muted Recovery
The economists at Oxford Economics forecast a 1.1% decline in gross domestic product, with economic activity continuing to contract due to rising mortgage renewals, an ongoing housing correction, and struggles for businesses. They also anticipate that the United States’ slowdown will negatively impact Canadian exports. Furthermore, they expect a gradual recovery, with population growth and the Bank of Canada’s policies playing crucial roles.
Population Growth and Labor Supply
Despite a prediction of continued population growth with 1.5 million new arrivals expected over the next two years, there are concerns that supply may outpace job growth, leading to a rise in the unemployment rate to 7.5% by the third quarter of 2024.
Bank of Canada and Inflation
Oxford Economics also expects the Bank of Canada to gradually cut its benchmark interest rate, reaching 4.25% by the end of 2024. The economists believe that inflation will return to the 2% target by the end of this year.
The Uncertainty of Fiscal Policy
The economists at Oxford Economics also predict that unless the recession is severe, government spending in Canada will not see major new spending, leading to budget shortfalls and overall government fiscal balance.
Unforeseen Wildcards
Wildfires, extreme weather, labor strikes, supply disruptions, global tensions, and conflicts are all seen as unpredictable factors that could affect the economic outlook for 2024, creating more risk and uncertainty.
View from National Bank of Canada
Meanwhile, a report from the National Bank of Canada reveals that Canada’s population growth is outpacing its peer countries in the Organisation for Economic Co-operation and Development. However, concerns are raised about the ability of the economy to absorb recent high growth as the workforce is not aging as fast as the OECD average.
Conclusion
With conflicting views on Canada’s economic outlook, it’s hard to determine the reality of the situation. For now, it’s important to consider how different factors, both domestic and global, could influence the country’s economic future. The uncertainties lie in fiscal policy, the impact of population growth, and other unforeseen wildcards. Only time will tell if Canada is truly headed towards a recession or if there’s hope for a more positive outcome.”
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