Predictions of if and when Canada will slip into a recession are as precarious as predicting the weather (although forecasters of the latter seem to have improved of late).. Interest ratesThe CD Howe Institute is recommending the Bank of Canada leave interest rates at 5%. .A recession is “a significant, widespread, and prolonged downturn in economic activity. A common rule of thumb is that two consecutive quarters of negative gross domestic product (GDP) growth mean recession.”.Late last summer, economists, forecasters, and even central banks predicted a severe recession in Canada, incorrectly, as it turns out, to hit sometime in the first two quarters of 2023..One prognosticator who admitted getting it wrong is Douglas Porter, chief economist and managing director at BMO Capital Markets, who spoke at a BMO Business Banking forum in Edmonton on May 17..Porter spoke of three mindsets when addressing the probability of a recession: the optimist, who thinks there will not be one; the cautious person, who sees the 400 basis point increase in interest rates and thinks things will slow down; and the pessimist, who also notes the interest rate increase and believes the country is headed into a full-blown recession for sure in the next year or so..Porter identifies as a cautious thinker, with a mild downturn over the next couple of quarters, adding that the mistake made by forecasters in September was underestimating inflation. Now, the mistake is underestimating the economy, which has been resilient. In terms of a slowdown, Porter is calling for GDP growth in Canada, and the US, to be 1% this year, which is lower than normal, rising to 2% next year..He added that the rate increase over the past year is just now starting to affect the majority of Canadians, which he says “is exactly what the doctor ordered to take some steam off” the ‘doctor’ being the Bank of Canada..There are some leading indicators the economy is slowing, more so in some regions than others in Canada, according to the ‘local spending tracker’ developed by the Canadian Chamber of Commerce (CCC), which measures spending in individual cities, provinces and the country as a whole, adjusted for seasonality, inflation and population growth and is released in report form by CCC. .The tracker report shows spending in Canada started 2023 with “a burst of activity” aided by job growth and unseasonably warm weather. Still, the momentum is slowing as interest rates affect more consumers..“Unfortunately, spending momentum is slowing as consumers cope with higher interest rates,” says the report. “After adjusting for high inflation and rapid population growth, Canada’s real spending growth per person fell into negative territory in March and April.”.Measured from the start of the pandemic, the growth in consumer spending has been the strongest in Atlantic Canada and weakest in Western Canada, including the Prairies and Northwest Territories, which all recorded growth rates of less than 25%..Drilling its data further down to cities and central metropolitan areas, the tracker found, on a year-over-year basis, per person spending growth is now falling in 7 of the 10 largest cities in Canada, including Toronto, Vancouver, Edmonton, Calgary, as well as other key local economies, and especially in the Kitchener-Cambridge-Waterloo region..Of the top 10 cities, only Winnipeg, Hamilton, and Ottawa are now showing positive real spending growth per person, with an average spending growth gap of 13% from the fastest to the slowest growing cities..Measured year-over-year, per person spending growth is down in Canada as a whole, as well as in Ontario, Alberta, Yukon, Saskatchewan, and British Columbia, which has the lowest growth rate at –4.2% compared to the highest of +5.4% in Prince Edward Island..The report indicates that a sizeable share of local regions can be in recession in any given year, even if the national economy is growing.
Predictions of if and when Canada will slip into a recession are as precarious as predicting the weather (although forecasters of the latter seem to have improved of late).. Interest ratesThe CD Howe Institute is recommending the Bank of Canada leave interest rates at 5%. .A recession is “a significant, widespread, and prolonged downturn in economic activity. A common rule of thumb is that two consecutive quarters of negative gross domestic product (GDP) growth mean recession.”.Late last summer, economists, forecasters, and even central banks predicted a severe recession in Canada, incorrectly, as it turns out, to hit sometime in the first two quarters of 2023..One prognosticator who admitted getting it wrong is Douglas Porter, chief economist and managing director at BMO Capital Markets, who spoke at a BMO Business Banking forum in Edmonton on May 17..Porter spoke of three mindsets when addressing the probability of a recession: the optimist, who thinks there will not be one; the cautious person, who sees the 400 basis point increase in interest rates and thinks things will slow down; and the pessimist, who also notes the interest rate increase and believes the country is headed into a full-blown recession for sure in the next year or so..Porter identifies as a cautious thinker, with a mild downturn over the next couple of quarters, adding that the mistake made by forecasters in September was underestimating inflation. Now, the mistake is underestimating the economy, which has been resilient. In terms of a slowdown, Porter is calling for GDP growth in Canada, and the US, to be 1% this year, which is lower than normal, rising to 2% next year..He added that the rate increase over the past year is just now starting to affect the majority of Canadians, which he says “is exactly what the doctor ordered to take some steam off” the ‘doctor’ being the Bank of Canada..There are some leading indicators the economy is slowing, more so in some regions than others in Canada, according to the ‘local spending tracker’ developed by the Canadian Chamber of Commerce (CCC), which measures spending in individual cities, provinces and the country as a whole, adjusted for seasonality, inflation and population growth and is released in report form by CCC. .The tracker report shows spending in Canada started 2023 with “a burst of activity” aided by job growth and unseasonably warm weather. Still, the momentum is slowing as interest rates affect more consumers..“Unfortunately, spending momentum is slowing as consumers cope with higher interest rates,” says the report. “After adjusting for high inflation and rapid population growth, Canada’s real spending growth per person fell into negative territory in March and April.”.Measured from the start of the pandemic, the growth in consumer spending has been the strongest in Atlantic Canada and weakest in Western Canada, including the Prairies and Northwest Territories, which all recorded growth rates of less than 25%..Drilling its data further down to cities and central metropolitan areas, the tracker found, on a year-over-year basis, per person spending growth is now falling in 7 of the 10 largest cities in Canada, including Toronto, Vancouver, Edmonton, Calgary, as well as other key local economies, and especially in the Kitchener-Cambridge-Waterloo region..Of the top 10 cities, only Winnipeg, Hamilton, and Ottawa are now showing positive real spending growth per person, with an average spending growth gap of 13% from the fastest to the slowest growing cities..Measured year-over-year, per person spending growth is down in Canada as a whole, as well as in Ontario, Alberta, Yukon, Saskatchewan, and British Columbia, which has the lowest growth rate at –4.2% compared to the highest of +5.4% in Prince Edward Island..The report indicates that a sizeable share of local regions can be in recession in any given year, even if the national economy is growing.
