Accounting firm Deloitte is forecasting a recession in Canada this year as rising interest rates push the economy into negative growth.
The firm’s 2023 Economic Outlook cited the Bank of Canada’s aggressive interest rate hikes and a recession in the neighbouring U.S. as the main factors that will lead to a contraction in the months ahead.
Deloitte said that it believes the central bank’s interest rate increases have likely come to an end, but that the full effects on Canada’s economy have yet to be felt.
The Bank of Canada raised interest rates seven times last year to lower inflation that was at a 30-year high. The benchmark overnight interest rate now sits at 4.25%, the highest it has been since the 2008-09 financial crisis.
Despite forecasting a recession this year, Deloitte said the economic contraction is unlikely to be as severe as in the past.
While recessions have led to widespread job losses in the past, Deloitte does not foresee an overall decline in Canadian employment as labour shortages persist across the country.
Still, household spending in Canada declined sharply in the third quarter of 2022 as households were forced to spend more of their income on servicing debt.
Debt-carrying costs rose by 16.2% in the third quarter of 2022, the largest increase on record, said Deloitte.
