Former Bank of Canada Governor Stephen Poloz said the Canadian economy is at greater risk in the form of a "hard landing" – a rapid economic slowdown after a period of growth and approaching recession.

Meanwhile, amid the central bank raising interest rates to tame inflation, inflation rates declined to 5.2 percent in February. This is lower than 5.9 percent in January, after a 40-year record high rise during the summer, reaching 8.1 percent in June.

Poloz also told CTV question period host Vassy Kapelos – in a joint interview with former Liberal Finance Minister John Manley broadcast on Sunday – that the efforts of the Bank of Canada and the federal government to curb inflation are working, but the chances of a hard landing remain.

He said, "The risk of a hard landing has definitely risen, given that so much has already happened, and we are still waiting for the rest of the effects of interest rate hikes to work their way through."

Also, while Poloz said supply growth is a good sign, at this stage it will require "some luck" to achieve a soft landing and avoid a recession.

Meanwhile, federal Finance Minister Chrystia Freeland is scheduled to present the budget on Tuesday, having long indicated that Canadians can expect fiscal restraint to avoid fueling inflation, but also some important investments. Specifically, the government has taken targeted measures to help mitigate the effects of inflation, in addition to already announced healthcare funding estimated at $196 billion for provinces and territories over the next ten years, and clean economy spending to help compete with U.S. inflation. The Inflation Reduction Act, which provides billions in energy incentives south of the border.

However, Poloz described last year’s federal budget as a “missed opportunity” to have a “different mix" of spending, thereby “lowering the Bank of Canada’s interest rate path.”

He said there is now less risk that government spending will offset the effects of the Bank of Canada raising interest rates.

Adding, “I think we have mostly passed that point as an issue,” adding that last year might have been a more appropriate time to stimulate the economy.

Poloz continued: “Maybe it was better for everyone.” But that missed opportunity is behind us, and now it is clear the economy is slowing down. We received all this news in the fourth quarter, sooner than most people expected. All the interest-sensitive parts, like housing and business investment, have already declined for three consecutive quarters, and from this standpoint, you feel the recession already.” “So in that kind of space, I think acting to cause inflation is off the table.”