Posthaste: Canada's so-called 'soft landing' may be harder than you think
Good morning,
The surprisingly robust performance of the economy despite punishing interest rate hikes has doused recession fears and raised hopes that we can escape this inflation battle with a so-called soft landing.
Just this past week the International Monetary Fund raised its outlook for the global economy, speculating that risks had receded.
The IMF now predicts global gross domestic product will rise by three per cent in 2023, slower than the 3.5 per cent growth last year, but up from the fund’s April forecast of 2.8 per cent.
At the United States Federal Reserve’s meeting last week chair Jerome Powell said the central bank is no longer forecasting a recession.
But CIBC chief economist Avery Shenfeld cautions against popping the champagne just yet.
“It’s worth noting that a soft landing is still only a mixed blessing for investors, workers and those seeking re-election in North America,” Shenfeld said in CIBC Capital Markets’ weekly note.
Among his “hard truths about soft landings,” Shenfeld said we can say good-bye to the strong job numbers Canada and the U.S. have seen over the past few years.
Central bank rate increases aim to push the job vacancy rate down and unemployment rate up and a final hike in September has not been ruled out.
“If not an outright recession, we could still see a three-quarter period of negligible economic gains, and a half point or so climb in the jobless rate on both sides of the border,” Shenfeld wrote.
Corporate earnings have held up better than expected because the long-expected recession has failed to show up, he said. But the slump in economic growth CIBC expects and the erosion of pricing power in the consumer sector should eventually take some toll.
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