“Lower commodity prices, elevated uncertainty, lower equity values, and a weaker U.S. are all acting as brakes on growth,” says Scotiabank chief economist.
Canadians should expect continued interest rate hikes and a recession, according to Jean-Francois Perrault, chief economist and senior vice-president at Scotiabank
“Lower commodity prices, elevated uncertainty, lower equity values, and a weaker U.S. are all acting as brakes on growth,” he said in a note to clients on Monday.
“We expect growth to slow from 3.2 per cent in 2022 to 0.6 per cent next year and for the economy to enter a technical recession in the first half of 2023.”
Perrault added that his team now believes the “Bank of Canada will now need to raise its policy rate to 4.25 per cent by the end of the year.”
“This change in view on our policy rate forecast—our last forecast expected the policy rate to peak at 3.75 per cent—reflects in equal measure the fiscal support measures being rolled out domestically, as well as the impact of a rapidly depreciating Canadian dollar,” he said.
“Both developments will put upward pressure on inflation, though we take comfort from the fact that there are some signs that inflation is moderating in Canada, in contrast to the U.S.”
The higher interest rate peak prediction is notable, because this is something the Liberals were warned about when they unveiled their ‘inflation fighting plan.’
The plan – which included billions in new spending fuelled by borrowed and printed money – represented the same kind of inflationary spending policies that have contributed to the rise in prices slamming Canadians today.
Many warned that this would leave the Bank of Canada with little choice but to raise interest rates higher than planned, and that is what Scotiabank is now predicting will take place.
There is of course a devious political component to this, as the Liberals likely believe that by putting the Bank of Canada in a position where they have to raise rates even higher they can push the blame fully onto the BoC, while evading blame for the consequences of their own inflationary actions.
Spencer Fernando
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