Posthaste: Soft landing for Canada's economy is becoming 'a distant prospect,' economists say - Yahoo Canada Finance

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Good Morning!

With hawkish central bankers plowing ahead to get inflation under control, more economists are coming around to the idea that a soft landing for the economy is increasingly unlikely.

Since March the Bank of Canada has hiked its rate 300 basis points and is showing no signs of stopping.

“BIS research suggests front-loaded rate hikes ‘can help prevent a hard landing,’ said RBC senior economist Josh Nye in a report Monday. “But with policy makers pledging to do what it takes to rein in inflation, we think a soft landing is becoming a distant prospect.”

Economists had expected the Bank of Canada to hike rates by 75 basis points earlier this month. That rise followed a full percentage point increase in July and there was speculation the Bank would pause its most aggressive cycle in a decade at 3.25 per cent.

The policy statement, however, put paid to that theory. “Governing Council still judges that the policy interest rate will need to rise further,” it said, prompting many economists to hike their interest rate forecasts.

RBC, which had previously forecast a 25 bps hike in October, now expects a 50 bps increase next month and another 25 bps in December to take the rate to 4 per cent, up from its previous forecast of 3.5 per cent.

This comes even as the economy’s momentum begins to fade, said Nye. While Canada’s economy showed solid growth in the second quarter, most of it came early in Q2, he said. The labour market is also showing signs of slowing, with employment declining for a third month in a row and the jobless rate rising.

RBC expects recessions in Canada, the U.S., eurozone and U.K. in the year ahead. In Canada, the downturn should be moderate with the jobless rate rising 1.7 percentage points from trough to peak over the next year and a half, it predicts.

Oxford Economics also expects a 50 bps hike in October, followed by a moderate recession in late 2022, brought on by the impact of higher rates, the deepening housing correction and downturns in the U.S. and other economies.

“We have warned for some time that an overly aggressive Bank of Canada represents the largest downside risk to the economy,” said Tony Stillo, Oxford’s director of Canada economics. “We now think that such rapid tightening of monetary policy given Canada’s highly interest-sensitive economy, along with a deteriorating external environment, make a recession the most likely outcome for the economy.”

The majority of economists in a recent survey by Finder agree. Seventy-eight per cent now predict a recession, compared with 69 per cent in July and 50 per cent in June.

Most believe the downturn will come in the first quarter of 2023, but 11 per cent say Canada is already in recession.

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WORLD MOURNS Members of the public lay flowers in Green Park in London, England, on Monday following the death of Queen Elizabeth II. The Queen died at Balmoral Castle in Scotland on Sept. 8 and is succeeded by her eldest son, King Charles III. Dan Kitwood/Getty Images

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• 26th annual Scotiabank Back to School conference

• 23rd annual BMO Media & Telecom conference

• Nadine Ahn, chief financial officer at RBC, will speak at the Barclays Global Financial Services Conference in Toronto

• Statistics Canada to release its investment in building construction data

• The Association of Construction and Housing Professionals of Quebec will host a debate on the theme of housing

• At the Big Cities Caucus of the Union of Quebec Municipalities, mayors of the 10 Quebec major cities will hold a press conference to present their common demands to the next Quebec government in order to enable municipalities to deal with climate change.

• Today’s Data: U.S. CPI Notable

• Earnings: Roots, WildBrain

 

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Canadians household debt in relation to their income climbed higher in the second quarter as our debt grew faster than our earnings, Statistics Canada said Monday. Household disposable income rose to 181.7 per cent on a seasonally adjusted basis in the second quarter, up from 179.7 per cent in the first quarter. That means there is about $1.82 in credit market debt for every dollar of household disposable income in the second quarter. Today’s chart from Statistics Canada shows household credit market debt to household disposable income, seasonally adjusted.

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Sending your child to university can run you at least $25,000 to $30,000 to get through four years of an undergraduate degree for tuition alone. Add in residence, food plans and travel and you are looking at a bigger bill towards $100,000. Starting early with an RESP is a no brainer, but consider as well how your kids can contribute to education costs.

For tips on how to save for your children’s college, dip into the FP’s ongoing series that explores personal finance questions tied to life’s big milestones.

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Today’s Posthaste was written by Pamela Heaven (@pamheaven), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

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Posthaste: Soft landing for Canada's economy is becoming 'a distant prospect,' economists say - Yahoo Canada Finance
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