Economists at Royal Bank of Canada (RY) are forecasting that the country will fall into a
“moderate and short-lived” recession in 2023.
Royal Bank, commonly known as RBC, said that Canada’s economy will be pushed into a
recession next year by persistent inflation, high interest rates, and labour constraints. A
recession is defined as two consecutive quarters of negative economic growth.
“This recession will be moderate and short-lived by historical standards—and can be reversed
once inflation settles enough for central banks to lower rates,” wrote RBC in a new outlook for
the Canadian economy.
RBC is predicting back-to-back economic contractions of half a percentage point in the middle
of next year, before the economy returns to growth of 0.2% in the fourth and final quarter.
The Bank of Canada is expected to lift its trendsetting interest rate to 2.25% from 1.50% at its
upcoming policy meeting scheduled for next week. That would be the fourth rate hike this year
as the central bank tries to lower inflation from a 40-year high of 7.7% to its target range of 1%
to 3%.
RBC is forecasting that inflation will be at 5% through the first quarter of 2023 and will reach the
Bank of Canada’s target range in the third quarter of next year.
RBC’s economists also said that they expect Canada’s unemployment rate will only rise
marginally compared to past recessions as businesses continue to struggle with labour
shortages across the country.
So far this year, RBC’s stock has declined 7% to trade at $127.48 a share.