Posthaste: In Canada, the whiff of recession is in the air
Good morning,
When the Bank of Canada first began hiking interest rates back in 2022 we were told it could take 18 months to two years for the effects to work through the economy.
Well, here we are.
Eighteen months on and we have now entered the period of “peak tightening effects,” said Desjardins chief economist Jimmy Jean.
So how does it look?
Economists say signs that the economy is weakening are now undeniable.
The second-quarter GDP reading was a big tipoff. Not only did it miss the Bank of Canada’s forecast, it also shrank, the second contraction in the past three quarters.
A flat estimate for July suggests momentum going into the third quarter was just as weak.
On the labour front, the 0.5 percentage point increase in Canada’s jobless rate over the past four months is the largest outside of the pandemic since the 2008/09 recession, said RBC Economics.
“Since the 1970s, there have been just six periods when the jobless rate rose by that much in such a short timeframe prior to this year — and four of them were during recessions,” RBC economists wrote in a report entitled “Canada’s economic engine is gearing down.”
Nor is economic data the only warning sign. Bank earnings last month were lacklustre and not just because lenders are putting away more money for bad loans, said Jean.
Banks are getting more careful about their spending and job vacancies in finance jobs dipped below their pre-pandemic averages in June, he said.
Some say the recession is already here.
The weak second-quarter GDP left Oxford Economics more convinced that the economy has slipped into a moderate recession that will last until early 2024. They have lowered their growth forecasts for Canada to 0.7 per cent in 2023 and a contraction of -0.5 per
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