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Here is what Canada’s Top Economists predict for 2023

The Economic Club of Canada, a respected platform for non-partisan dialogue among notable thought leaders, held its annual outlook breakfast featuring predictions from four of Canada’s top chief economists for 2023. Below is a summary of the key questions and responses which are on all the minds of Canadians.

Is the Canadian economy headed for a soft landing or a full-on recession in 2023?

We might have a slowdown caused by monetary policy and a soft landing where inflation is controlled without hurting the economy too much. Even though the Canadian economy has been more resilient than expected in recent years, the saying “never bet against the Fed” still holds true. Historically, every time the US Federal Reserve and the Bank of Canada raised rates, the next year saw a slowdown in the economy.

Is the Bank of Canada nearing the point of pausing its policy of increasing interest rates? 

It looks like the Bank may take a break after January to see if more rate hikes are needed, since they know it’s causing problems for Canadians.

Is there a risk the Bank of Canada has gone too far, too fast to tame inflation? 

Yes, the recent rate hikes might bring more trouble, and there are other factors that could slow down the economy too, like changes in trade and the cost of carbon. The housing market’s also been affected by the rate hikes. There’s a chance of a recession.

When will inflation moderate? 

By the end of 2023, inflation in Canada should be around 1-3%, with core inflation at 3%. But there’s a risk it could settle at 5%, which would require more action from the Bank of Canada.

Will there be job losses in the Canadian economy this year after such a strong month of job creation in December 2022? 

Although the economy looks good now, there may be job losses in the future, but it’s not as bad as it has been in the past. Some industries have had big gains in the past couple years and they may not be as affected by job cuts. Manufacturing is one example, it typically loses a lot of jobs in a recession but it has less employees now so the job losses may not be as high

Are or were we in a housing bubble? 

It depends on the location, but some areas in Canada had a housing bubble while others didn’t. Overall, house prices are still higher than pre-pandemic.

Will housing become affordable in the next two years? 

Very unlikely. The housing market is more likely to become less affordable at least in the near term even as a record level of new supply comes on stream. That supply will not keep up with new demand driven by immigration and as many of Canada’s 10 million millennials begin buying their first homes.

Will OSFI (The Office of the Superintendent of Financial Institutions) change/tighten mortgage qualification rules this year? 

The regulator is taking public opinions on their mortgage guidelines and plans to finish by April 14th, 2023, but won’t make any changes until they see how the spring housing market goes. They’re mainly focused on managing risk and not making housing more affordable. So far, Canadians have handled interest rate changes well and mortgage lenders have seen stability in credit performance.

How does Canada’s economic outlook compare to America’s? 

America has the potential to be more resilient because U.S. consumers went through a deleveraging cycle after the financial crisis whereas Canadians levered up. This difference shows up in share of income that is devoted to debt service in Canada versus the U.S.  In the U.S., consumer debt service is at historically low levels and in Canada it’s about to become historically high. American firms did not hire as aggressively as Canadian firms either, meaning fewer areas of the job may be at risk. However, Canada has a higher personal savings rate, and our provincial and federal fiscal positions are better than those in the U.S.

Is the Canadian dollar poised for a rebound? 

Most of the recent weakness in the Canadian dollar is due to the relative strength of the U.S. dollar but our currency has also been held back because of commodity prices. It is possible that the U.S. dollar will weaken later this year with a benefit to our currency, but as is, the Canadian dollar is currently trading close to its fair value.

Wherever the economy lands in 2023, you can count on myself and my team to be here to serve your mortgage needs.

Please contact me if I can be of assistance.

Bruno Marsala
[email protected]
Tel: 416-716-7189

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