Despite upward revisions to global growth projections, a mild downturn is still expected.
RBC is predicting a mild recession in both Canada and the United States.
They expect the recession to hit in mid-2023.
The prediction was part of the latest edition of the RBC Canadian Economic Outlook:
“Still, interest rates impact the economy with substantial lags – and often end up having unintended consequences. Recent turmoil in financial markets has cast doubt on whether the Fed will continue to raise interest rates. The Bank of Canada already moved to the sidelines announcing a pause in rate hikes in January. But higher interest rates will continue to cut into household purchasing power with a lag. Housing markets have continued to retrench, both in Canada and abroad. The global manufacturing outlook has softened, and easing supply chain disruptions and lower (albeit still-high) commodity prices are helping to 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.”
Share of household income going to debt payments to reach record high
Canadians have become increasingly reliant on debt in order to sustain their standard of living. With a higher share of household income projected to be directed towards debt payments, household wealth and spending power are set to decline:
“The share of household disposable income eaten up by debt payments was still below pre-pandemic levels at the end of last year, but will rise to record levels by the second half of this year. That will be compounded by a sharp pullback in household net wealth as housing markets continue to retrench. With households feeling less wealthy and higher debt payments and prices cutting into purchasing power, consumer spending is likely to slow later in 2023.”
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