Economists at Royal Bank of Canada expect the country to enter a recession in the first quarter of 2023, as "cracks are forming in the Canadian economy," according to the October 12 forecast by RBC economists Nathan Janzen and Claire Fan. While labor markets remain strong, employment has declined by 92,000 over the past four months. Janzen and Fan had previously predicted that a "mild" recession would begin in Canada in 2023, and now expect interest rates to rise to four percent in Canada and 4.5 to 4.75 percent in the United States, accelerating the onset of the recession. Janzen and Fan added: "The pains of the upcoming recession will not be evenly distributed among Canadian businesses and households, as the manufacturing sector is likely to be among the first to contract, while some contact-intensive service sectors such as travel and hospitality may be more resilient. To combat inflation, the Bank of Canada has raised the key interest rate since March after it fell to 0.25 percent during the COVID-19 pandemic, where it now stands at 3.25 percent, and RBC expects Canadian prices to peak in late 2022. Also, Janzen and Fan warned that "this depends on the easing of inflation pressures; more persistent inflation trends over the coming months could lead to additional increases, possibly a bigger decline in household consumption, a deeper recession, and the hardest hit may be low-income Canadians, with rising unemployment rates." Due to inflation, rising prices and interest rates are expected to reduce the average household purchasing power by nearly $3,000, according to RBC. In the same context, Janzen and Fan explained: "While tight labor markets have pushed wages higher, this has not been enough to offset these losses, and this will have a significant impact on Canadians at the lower end of the wealth spectrum, especially those whose disposable income has eroded alongside pandemic supports." RBC also expects the weak economy to push the unemployment rate to seven percent by the end of 2023, up from 4.9 percent in June and July. This is higher than RBC previously expected, but less severe than during previous economic downturns. Janzen and Fan wrote: "Rising job opportunities and worker scarcity will protect against a sharp rise in unemployment in the very near term, the unemployment rate will continue to rise, but we expect longer job search times for the unemployed, and initially reduced working hours. This will be followed by more outright layoffs."