How bad will Canada's economic downturn be?

RBC shares its thoughts

How bad will Canada's economic downturn be?

The coming downturn in Canada will be “moderate” by historical standards, according to RBC Economics.

This is despite a “soft landing” – in which labour markets and broader economic conditions settle to sustainable levels – becoming increasingly unlikely for Canada, said RBC analysts Claire Fan, Nathan Janzen, and Craig Wright.

“Labour markets remain exceptionally strong across most advanced economies with unemployment rates still around the lowest levels in decades,” RBC said. “But central banks at home and abroad continue to push ahead with aggressive interest rate hikes intended to cool overheating demand and tame inflation pressures.”

Read more: A rough road lies ahead for the Canadian economy, says former BoC official

RBC is anticipating a 1.7% trough-to-peak increase in the Canadian unemployment rate over the next year and a half – a gain that it described as “relatively mild” compared to previous downturns.

“Signs are that inflation pressures have peaked, at least in North America as global commodity prices fall from very high levels, supply chain disruptions ease and housing markets correct under the weight of rising mortgage costs,” RBC said.

“Still, central banks will continue to pump the monetary policy brakes until consumer demand has softened enough to bring inflation rates fully back to target.”

RBC noted that, aside from Canada, other regions at risk of considerable recession are the United States, the Euro area, and the United Kingdom.