Bank of Canada seen holding rates at 5% as economy avoids hard landing
Economists see no chance of recession this year
Economists now see a soft landing for the Canadian economy, with no recession this year despite interest rates at a 22-year high.
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The economy will stall in the second half of 2023 but it won’t contract, according to a monthly Bloomberg survey of 27 economists. The median forecast sees the Bank of Canada holding its overnight rate at five per cent well into next year — with no rate cuts until April.
The results support the Bank of Canada’s view that economic growth is moderating, while core inflation remains elevated. Governor Tiff Macklem said this month that policymakers are trying to balance the risks of over- and under-tightening, and avoid “making economic conditions unnecessarily painful for everybody.”
Unexpected strength in household spending earlier this year prompted the central bank to raise rates in June and July after a brief pause. But growth in consumption spending is projected to slow over the next year, as demand for rate-sensitive goods and services weakens and more households renew their mortgages at higher rates.
Economists expect gross domestic product to expand 0.4 per cent in the third quarter and remain unchanged in the final quarter, the survey showed. Those are up from last month’s survey forecast of minor contraction in both quarters — a technical recession, in other words.
The economy expanded 3.1 per cent in the first quarter, and the Bank of Canada’s forecast is that it grew 1.5 per cent from April to June.
Economists see the current policy rate of five per cent as the peak for the Bank of Canada, before rate cuts begin in the second quarter. Macklem and his officials announce their next decision on Sept. 6.
Bloomberg.com
