RBC expects ‘mild’ recession in Canada in middle of 2023

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Royal Bank of Canada economists are expecting a recession in the Canadian economy during the second and third quarters of the year, according to a report on Canada’s economic outlook that came out this week.

Their prediction puts a more specific timeline on RBC’s previously stated predictions for a 2023 recession, even though economic growth “has been more resilient than feared in the wake of aggressive interest rate increases” that began last year.

The economists said higher central bank interest rates will continue to impact the economy in 2023, weighing on household purchasing power and the housing market. At the same time, they said the global manufacturing outlook has softened and eased supply chain disruptions to help slow inflation.

“Against that backdrop, the most likely scenario is still that the U.S. and Canadian economies will both enter mild recessions over the middle-quarters of 2023,” the report said.


RBC said it expects any recession to “sit firmly on the ‘mild’ side of historical downturns,” but the economy won’t avoid a bumpy landing entirely.

It might be possible for consumer spending to be less sensitive to interest rates than expected, the report said, but that would keep inflation pressures sticky and lead to higher interest rates. Those higher rates would in turn cut into household purchasing power later on, “delaying but not preventing a downturn,” the report said.

The economists said consumer demand needs to soften for inflation to reach the central bank’s target two per cent rate.

“The alternative to the relatively mild ‘bumpy,’ economic downturn we expect in 2023 could still look more like a crash landing down the road if substantially higher interest rates, and a larger pullback in economic activity, is required to get inflation fully back under control,” the report said.


“No parts of the country will be sheltered from the stiffer economic headwinds,” RBC’s report said, predicting materially slower growth in all provinces except Newfoundland and Labrador, which is benefiting from accelerating offshore oil production.

The oil-producing provinces of Saskatchewan, Alberta and Newfoundland and Labrador are expected to come out “ahead of the pack” largely thanks to strong commodity prices.

Outlooks are worse in British Columbia, Ontario and Quebec, where higher household debt service costs and corrections in the housing markets are having a bigger economic impact.

Atlantic Canada, meanwhile, is growing faster than the national average as it benefits from high population growth and residential investment. 

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