By Ketki Saxena
Investing.com -- After a range of recent economic data reflecting a significant slowdown in the Canadian economy, economists at RBC (TSX:RY) note that there are indications that " that a long-expected ‘mild’ economic downturn may have already begun."
Amongst the signs that support the assertion that Canada may already be in a moderate recession, the analysts at RBC note the following factors:
- Canadian GDP declined by 0.2% in Q2 of this year, and early reports point to a second consecutive decline in Q3.
- Canadian GDP has declined for four consecutive quarters on a per capita basis, as the population surges
- The 0.5 percentage point increase in the Canadian unemployment rate over the last four months - the largest since the 2008/2009 Financial Crisis, apart from the pandemic
- Retail spending softening significantly, with volumes falling 3% at an annualized rate in Q2 - and indicators for a further slowdown in Q3 and beyond
If the Canadian economy has already entered a recession, begs the question: what comes next for the Bank of Canada?
The report from RBC notes that "Amid a softening in GDP growth and labour markets we expect the BoC to stay on the sidelines, holding rates steady into 2024."
However, they add the caveat that "Near-term risks to both BoC and Fed interest rate projections are tilted higher rather than lower", with the central banks likely "spooked too much by the spike in inflation over last two years to pivot back interest rate cuts".
Unlike several analysts such as those at ING, CIBC (TSX:CM), and Desjardins, who expect rate cuts as early as spring 2024, RBC does not expect rate cuts from the BoC until Q3 next year.