Canada is headed toward a recession in 2023, but it is likely to be “short-lived” and not as severe as prior downturns, according to a new report from RBC.
RBC economists say soaring food and energy prices, rising interest rates and ongoing labour shortages will push the economy into a “moderate contraction” next year.
RBC says it expects the unemployment rate to reach 6.6 per cent next year, but doesn’t think it will take long to reverse some of that weakness in 2024 and beyond.
Household spending that accelerated out of the COVID-19 pandemic lockdowns will slow as higher prices, interest rates and unemployment hit households, the report adds.
RBC also expects house prices to fall 10 per cent in the year ahead, subtracting more than $800 billion from household net worth.
RBC says a three-quarters of a percentage point interest rate increase is likely next week, and sees the Bank of Canada pushing its key policy rate to 3.25 per cent by the end of this year. The central bank raised its key interest rate by half a percentage point to 1.50 per cent in June in an effort to get skyrocketing inflation under control.