\nArticle content<\/h2>\n In a report released Thursday, the bank said Canada\u2019s unemployment rate is now almost a full percentage point below RBC\u2019s assumption of the longer-run, non-inflationary level.<\/p>\n
\u201c(Recession) has become, in our view, the most likely outcome,\u201d Nathan Janzen, one of the report\u2019s authors, said.<\/p>\n
Bloomberg reported Thursday that RBC was the first of Canada\u2019s big banks to make such a prediction.<\/p>\n
The significant increase in interest rates, continuous inflation and central banks \u201csounding much, much more hawkish near term\u201d have shifted the odds in the past months, Janzen said.<\/p>\n
The report predicts the Bank of Canada will follow the lead of the U.S. Federal Reserve, which hiked rates by 75 basis points in June, during its meeting next week.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n It isn\u2019t the only hike the economists are expecting. They said they expect the Bank of Canada to lift rates to 3.25 per cent by the end of 2022, which they noted is high enough to significantly restrict growth, particularly in Canada, where household debt is very high.<\/p>\n
\nRecession has become, in our view, the most likely outcome<\/p>\n
Nathan Janzen<\/p>\n<\/blockquote>\n
\u201cIt doesn\u2019t take a whole lot at that point to push you into negative GDP growth rates at some point next year, which is how a recession is defined,\u201d Janzen said.<\/p>\n
Their report said that while the travel and hospitality sectors continue to recover, businesses are struggling to find the workers they need to expand production and soaring prices are cutting into Canadians\u2019 purchasing power.<\/p>\n
\u201cStrong domestic demand for housing and services has intensified these pressures and the labour crunch is driving wages higher,\u201d Janzen and fellow economist Claire Fan wrote.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n The forecast expects the unemployment rate will jump another 1.5 percentage points to 6.6 per cent as the economic contraction plays out next year \u2014 when Canadians are already grappling with higher prices and debt servicing costs.<\/p>\n
Nearly 70 per cent more jobs opened in June than before the pandemic and those hunting for staff were forced to compete for almost nine per cent fewer unemployed workers, it said.<\/p>\n
\u201cWhen you see unemployment starting to jump more significantly, that\u2019ll probably be the first sign that \u2026 we\u2019re in a recessionary backdrop,\u201d Janzen said.<\/p>\n
However, the economists said the slowdown will be modest and not as severe as prior downturns.<\/p>\n
They pointed out that much of the pressure the country faces stems from outside its borders, and central banks both in Canada and abroad are aggressively hiking rates to slow household demand and fight inflation.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n \u201cCanadian households have socked away over $300 billion in savings since the end of 2019. That\u2019s boosting spending \u2014 and adding more inflation pressure,\u201d they wrote, noting that this leaves lower income groups more vulnerable to rising rates and prices.<\/p>\n
A similar forecast by U.K.-based Oxford Economics on Wednesday predicts a \u201csoft landing\u201d for Canada\u2019s economy, estimating a 40 per cent probability of a recession over the next 12 months.<\/p>\n
\u201cWe\u2019re increasingly concerned that a conjunction of headwinds along with imbalances in the household sector could push the Canadian economy into recession,\u201d wrote Tony Stillo, the firm\u2019s Canada economics director.<\/p>\n
His report forecasts economic growth to slow sharply later this year and to stall in 2023.<\/p>\n<\/section>\n
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This advertisement has not loaded yet, but your article continues below. <\/p>\n<\/p><\/div><\/div><\/div><\/div>\n<\/section>\n<\/div>\n\nArticle content<\/h2>\n <\/p>\n\n Rising recession fears strip some of the lift from loonie’s outlook <\/span> <\/h3>\n<\/li>\n ‘Massive wealth’ Canadians stockpiled during pandemic being chipped away, study says <\/span> <\/h3>\n<\/li>\n Soaring inflation expectations raise odds of super-sized Bank of Canada hike <\/span> <\/h3>\n<\/li>\n<\/ol>\n <\/section>\nOxford is forecasting a soft landing for now, but \u201cwe\u2019re concerned that the (Bank of Canada\u2019s) fixation on dampening domestic demand to realign with supply will mean excessively high rates that could provoke a recession with still high inflation,\u201d Stillo wrote.<\/p>\n
The RBC report said this potential recession can be reversed once inflation settles enough for central banks to lower rates.<\/p>\n
\u201cGlobal inflation pressures may soon peak,\u201d economists wrote, but added that prices are still rising too fast and inflation won\u2019t slow sustainably until demand falls. Only then will central banks ease interest rates again.<\/p>\n
They said a slowdown both in Canada and abroad will help temper inflation.<\/p>\n
\u201cWe don\u2019t think it\u2019ll take long to unwind that weakness in 2024 and beyond.\u201d<\/p>\n
\u2022 Email: dpaglinawan@postmedia.com | Twitter: