'Too high for comfort': Economists place Canadian recession bets

​A recession could be in the cards for Canada’s economy, according to some prominent Bay Street economists.

GDP is expected to have contracted by 0.2 per cent in May, according a flash estimate from Statistics Canada on Thursday. The preliminary data is adding to fears higher interest rates are already taking a toll on growth while inflation runs rampant.    BNN Bloomberg asked some economists to provide their outlooks on the likelihood of a recession. Their answers are below. 

David Doyle, North American economist and Canadian market strategist, Macquarie Group   “Our baseline is for a recession ahead in 2023. We put the odds at ~70 per cent. We forecast Canada being more severely impacted than other developed economies, such as the U.S. This means we anticipate Canada to have a larger contraction in real GDP and a more substantial rise in the unemployment rate.”   “Underpinning this dynamic are the severe structural imbalances in Canada. An extreme level of household debt and residential investment that is more than three standard deviations stretched as a share of GDP. Together with an absence of growth drivers other than housing, makes Canada’s economy more vulnerable to a recession with the consequences likely to be more severe than elsewhere.”  Doug Porter, chief economist, BMO Capital Markets    “The odds are too high for comfort. We rank the odds of recession as being less than 50/50 over the next year, but it will be a close call. The fact is that we are likely looking at a cumulative rate hike of 300 basis points (or a bit more) in North America, and that is a very serious amount of tightening in a single year, which at the very least will cut growth close to zero.”   “Neither fiscal nor monetary policy will be able to respond quickly, unless and until underlying inflation begins to recede, and recede meaningfully. Job number one for policymakers is to make sure inflation recedes before they can even contemplate supporting growth.”  Avery Shenfeld, chief economist, CIBC Capital Markets   “We're only one more stroke of bad fortune from falling into a recession by the first half of next year, but at this point we'd put the odds in the 35 per cent range. Excessive rate hikes in either the U.S. or Canada could tip us into an outright downturn. A further shock to world food and energy prices that would make it extremely difficult for central banks to contain inflation expectations while keeping the economy growing.”   Warren Lovely, chief rates and public sector strategist, National Bank Financial   “Placing definitive odds on a recession is something of a fool’s errand. If pushed, we’d assign a roughly one-third chance of recession at this point in time, although this risk assessment remains fluid. With each successive and aggressive rate hike by the Bank of Canada and the U.S. Fed, risks of a hard landing accumulate.”   “Aggressive, rapid-fire rate hikes are not for the faint of heart, but by advanced economy standards, Canada might well fare better than most in the coming year or two.”  Stephen Brown, senior Canada economist, Capital Economics   “The probability of a recession in the next 12 months is about 25 per cent. That said, we should also acknowledge that the Canadian economy is enjoying a sizeable tailwind from higher commodity prices, which should support GDP growth over the next few quarters.”   “The extent to how deep the recession could be will depend on how much house prices fall. The 20 per cent drop in house prices that we forecasted over the next 18 months looks sizeable, but it would still leave prices 20 per cent higher than before the pandemic. In that scenario, we think any recession would be relatively moderate in the context of the pandemic or the recession that followed the global financial crisis, although the high debt load of the private sector means that there are meaningful downside risks.”  Jean-Francois, senior vice-president and chief economist, Scotiabank   “I don’t think a recession is coming in Canada. I would put the odds at 25 per cent or so. There is still lots of pent-up demand, balance sheets remain strong, commodity prices are reasonably high and job vacancies are at record levels. That provides a cushion to the blow to spending that inflation and interest rates are causing. If there should happen to be a recession, we do not think it would be a large one.”  Pedro Antunes, chief economist, The Conference Board of Canada   “A recession is a very real possibility, especially for 2023, but it would come first from outside Canada. We think a bumpy landing is coming but not a recession. Should it happen, the economic downturn would be most painful for Canadian households, since they’re the ones currently dealing with high inflation and rising debt financing costs.”