Financial services firm Desjardins Group is forecasting a mild recession for Canada in the first
half of 2023 due to high interest rates, a slowdown in the domestic housing market, and weak
economic growth in the U.S.
In a new report, Montreal-based Desjardins said that lowering inflation to the Bank of Canada’s
2% target won't be easy and that avoiding a recession is “increasingly unlikely.”
“We now expect the Canadian economy to tip into a mild recession in the first half of 2023,” said
the financial services company in its latest outlook.
The Bank of Canada has said that continued interest rate increases are needed to tame inflation
that stood at 7.6% in July. So far this year, the central bank has raised its benchmark overnight
interest rate to 2.50%.
Desjardins said that higher interest rates will put additional pressure on the Canadian real estate
market and lead to a reduction in household spending and business investment, leading to a
contraction in gross domestic product (GDP) during the first half of next year.
However, Desjardins said that the biggest impact on Canada’s economic growth will be a
slowdown in the national housing market. Since peaking in February of this year, home sales
across the country have declined 31% and prices have fallen 17%.
With economic growth slowing, Desjardins also warned that the job market across Canada will
weaken, and that the unemployment rate will likely rise in the short-term. Slowing growth in the
U.S. will also weigh on Canada’s economy in the months ahead, said the firm.
