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RBC expects a "moderate" recession in Canada in mid-2023

RBC expects a "moderate" recession in Canada in mid-2023

By Omayma othmani

Published: March 17, 2023

Economists at the Royal Bank of Canada expect a recession in the Canadian economy during the second and third quarters of the year, according to a report on Canadian economic forecasts released this week.

This places their forecast on a more specific timeline compared to RBC's previously announced forecast for a 2023 recession, although economic growth "has been more resilient than feared following the sharp interest rate hikes" that began last year.

Economists also said that the central bank's high interest rates will continue to impact the economy in 2023, affecting household purchasing power and the housing market. At the same time, they said global manufacturing outlooks have eased supply chain disruptions, helping to slow inflation.

The report stated: "Against this backdrop, the most likely scenario remains that the U.S. and Canadian economies will enter moderate recessions during the middle quarters of 2023."

RBC also said it expects any recession "to remain firmly on the 'moderate' side of historical downturns," but the economy will not entirely avoid a rough downturn.

The report said that consumer spending might be less sensitive to interest rates than expected, but this will keep inflationary pressures steady and lead to higher interest rates. It added that these elevated rates will in turn reduce household purchasing power later, "delaying the downturn but not preventing it."

Economists also said that consumer demand needs to be eased for inflation to reach the central bank’s 2 percent target.

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