Posthaste: Recession likely to hit soon, with Bank of Canada rate cuts to follow, economists say

financialpost.com:

Canada may not be in a recession right now, but it is likely to enter one very soon and that will prompt the Bank of Canada to cut interest rates, economists at Desjardins Group say.

A recession is expected to hit in the first half of 2024 as the full strength of higher rates weigh on the economy, according to a Jan. 22 note by Desjardins economists Jimmy Jean and Randall Bartlett.

The effects of a slowdown will widely dampen economic activity, the economists said. Canadians can expect declines in investment and exports — brought on in part by a weakening United States economy — along with a rise in the unemployment rate. Consumers trying to make more expensive mortgage payments in a high-interest rate environment are also seen curbing spending, squeezing the economy even more. Added together, that will push the country into recession.

Interest rate cuts will follow shortly thereafter. “Along with the trend decline in inflation, this should prompt rate cuts, likely starting this spring in Canada,” Desjardins said.

But a recession offers no reason to panic: the downturn is likely to be short-lived and mild. “We don’t see reasons to be overly pessimistic about what is happening,” Jean and Bartlett said. And even in the off chance things do take a turn for the worse, the Bank of Canada will able to step in, they said.

Canada’s economy weakened over 2023, but perhaps not enough to be coined a recession. The C.D. Howe Institute, which has become Canada’s unofficial judge determining recession periods, defines the term as a “pronounced, persistent and pervasive decline in economic activity.” The country doesn’t seem to have met that criteria by the end of the third quarter, Desjardins said.

For one thing, gross domestic