RBC now sees recession in early 2023, more job losses amid ‘cracks’ in economy

Royal Bank of Canada is accelerating its timeline for an expected recession to hit the country and now saying more jobs will be lost in the downturn.

Royal Bank of Canada, an early predictor of a recession in 2023, now expects the country’s economic downturn will hit sooner and with more job losses than first expected.

RBC updated its prediction in a note to clients Wednesday morning, now calling for a Canadian recession to begin as early as the first quarter of next year.

The bank first said in July that it expected a recession to hit the economy sometime in 2023, but that it would be “moderate” and “short-lived.”

RBC economists Nathan Janzen and Claire Fan wrote Wednesday that they now expected the jobless rate in Canada to hit seven per cent next year, up from an initial forecast of 6.6 per cent unemployment.

“Cracks are forming in Canada’s economy. Housing markets have cooled sharply. Central banks are in the midst of one of the most aggressive rate-hiking cycles in history. And while labour markets remain strong, employment is down by 92,000 over the last four months,” the pair wrote.

Interest rate hikes from the Bank of Canada will be a key factor in determining how deeply the economy contracts, they said.

Janzen and Fan expect the central bank to pause its rate hike cycle in late 2022 if inflation continues to show signs of “meaningfully” easing. If not, further increases are warranted.

“More stubborn inflation trends over the coming months could yet prompt additional hikes, and a potentially larger decline in household consumption and a deeper recession,” the note read.