NEWS

On July 13, 2022 the Governor, Tiff Macklem, of the Bank of Canada is expected to announce that the Overnight Rate is being bumped up another 75 basis-points. This will be the forth time in a row that the Bank of Canada has raised rates. The expected increase in the rate will naturally push the Prime Lending Rate up further from its current 3.70%. This will have a significant impact on lending products with floating rates based on prime such as Lines of Credit and Variable Mortgages.

Experts are saying that if the Bank of Canada is forced to continue raising rates to fight inflation, as they are expected to, then it will slow the consumer price growth. The economy would be thrown into a reverse for two straight quarters to finish off 2022 CMHC Chief Economist Bob Dugan has explained. Their models show how the central bank’s inflation fighting would push home prices further down, slow home sales further and create what is known as a “Technical Recession” during 2023.

Earlier in July, the Royal Bank of Canada was the first Canadian Major Bank to predict the nation’s economy will fall into a recession during 2023 amid a four-decade high inflation, historic labour shortages and continued aggressive interest rate hikes. RBC Economists have projected back to back quarter negative growth in 2023 that will yield a Technical Recession.

RBC projection of this recession is illustrated by Canada’s resource heavy economy. A resource heavy economy, such as Alberta, is benefiting from the recent energy prices boom but still remains vulnerable to global economic headwinds and higher borrowing costs that threaten to stall expansion in most advanced economies, such as Canada according to the RBC Economists.

At present, the projected recession we will be so fortunate to experience in 2023 will be mild. Mild or not, a recession generally brings on struggles within the economy, people do lose jobs, companies sell less helping the country’s output to decline.

Canadians are already scaling back on food, utilities and housing as the cost-of-living surges. According to a survey recently done by MNP, nearly half of those surveyed have cut back on non-essentials, including travelling, dining out and entertainment. No matter where Canadians turn, there is no reprieve as everything is more expensive.

Not a favourable time for any of us.

Source: BNN Bloomberg, CMHC, RBC Economics