An International Monetary Fund report expects a "significant" slowdown in Canada over the next year as "shocks can easily push the economy into a mild recession."

In a report released on Wednesday, IMF experts said the risks of stagflation in Canada are expected to increase to 1.5 percent in 2023 from 3.3 percent in 2022.

The unemployment rate could rise to over six percent. The report also warned that economic forecasts could be "much worse." If inflation remains high, the Bank of Canada may have to raise interest rates further, leading to a sharper slowdown.

It said that ticket prices elsewhere in the world, especially the United States, would have a significant impact on Canada. The annual statement of Canada’s IMF mission said, "A mild recession can easily appear, and the historical distribution of risks indicates about a 10 percent chance that the economy will contract for the whole of 2023."

Economists at Canada’s largest bank warned on Wednesday that the country is more likely to fall into recession sooner than they had expected. The Royal Bank of Canada originally forecast the contraction to come in the second quarter, but now expects a recession in early 2023, with rising interest rates and growing inflation.

RBC economists Claire Fan and Nathan Janzen wrote: "Cracks are forming in the Canadian economy." IMF staff expect the Bank of Canada to raise its rate to at least four percent by the end of this year and keep it there for several quarters,

leading inflation to fall to the 2 percent target by the end of 2024. They said higher borrowing rates will cause house prices to drop by 20 percent, but increased immigration should prevent this decline. They also urged Canadian governments to support this battle against inflation, by providing unexpected revenue gains from the commodity boom and avoiding broad spending increases that would undermine the central bank’s efforts.

Edited by: Yusra Bamtraf