Canada facing recession, but it’s not the end of the world: Desjardins

Canada is probably not in a recession, but it will be soon, Desjardins Group economists say. But it also doesn’t matter, as the economy is rebalancing and whether it falls into recession is mostly academic, according to a report.

“As of the end of the third quarter of 2023, Canada was likely not yet in a recession,” the Desjardins report said, noting that the data for the fourth quarter point to a modest gain in real GDP.

However, the economy is expected to fall into recession in the first half of this year, as the lagging impact of tighter monetary policy weighs more heavily on consumption, it noted.

“Having not yet felt the full impact of the rate hikes in 2022 and 2023, the Canadian economy will increasingly be weighed down by them,” it said, adding that a weaker U.S. economy will also weigh on trade.

“Together, these factors suggest to us that a mild recession is likely in the near term,” it said. “And along with the trend decline in inflation, this should prompt rate cuts, likely starting this spring in Canada.”

Ultimately, debating whether the economy is in recession or not “is a mostly futile debate among purists,” the report said. The Canadian economy “is in a rebalancing process that still has further to run,” it said.

“If things get ugly, the Bank of Canada has plenty of room to respond. But neither would it be responsible to pretend that the worst for the economy was left behind us in 2023.”

Staff

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