Recession will be ‘deeper’ than first thought, but job loss will be minimal: Deloitte

The Bank of Canada's interest rate hikes to date will push Canada into a 'deeper' recession than Deloitte first thought, but the finance firm still expects minimal job losses.

Canada’s economy will face a more pronounced slowdown this year than first thought, but it will still be historically “mild and short-lived” compared to previous recessions, according to the latest forecasts from Deloitte.

The consultancy and financial services firm said in a report Tuesday that the Canadian economy will hit a “deeper” recession in 2023 than it initially forecast last September.

Estimating that the country’s gross domestic product declined 2.2 per cent in the last quarter of 2022, Deloitte is now calling for a further contraction of 3.4 per cent and 1.6 per cent in the first two quarters of 2023.

While the firm expects growth to return midway through 2023, its call is for the gross domestic product (GDP) to drop 0.9 per cent this year.

In its September forecast, Deloitte had expected GDP to rebound in the second quarter of 2023, with the country’s economy able to eke out 0.2 per cent growth for the year.

Meanwhile, Deloitte expects inflation to slow “sharply,” easing to 2.9 per cent by the final quarter of 2023.

Deloitte pointed to the Bank of Canada raising its benchmark interest rate more than expected as driving the more pronounced recession, as well as the knock-on effects of a forecast economic slowdown in the United States.

Central banks in both economies have been “aggressive” with interest rate hikes, the report noted; the Bank of Canada raised its policy rate 400 basis points to 4.25 per cent in 2022, one of the fastest tightening cycles in its history.