Global Economic Outlook – September 2022 Canada: On path for a mild, short-lived recession amid global uncertainty The economic slowdown underway Inflation may have peaked but will Provincially, Ontario’s labor will likely continue in the next few remain elevated relative to target market keeps posting months, responding to tighter monetary due to tight labor markets and robust growth, Alberta policy and slowing aggregate demand. uncertainty related to commodity is benefiting from strong While the labor market remains strong, prices. Avoiding a wage-fueled demand for Canada’s and despite increased savings since inflation remains a priority for energy products, and 2020, household debt, especially for global central banks while longer- Québec and British first-time home buyers, remains a risk term inflation expectations have Columbia are facing broad to the outlook. remained stable. labor shortages. Mild, short-lived, recession Table 2: KPMG forecasts for Canada may occur in early 2023 2021 2022 2023 GDP 4.5 3.4 1. 3 Covid variants have come and gone, and Canada’s GDP has Inflation 3.4 6.8 3.4 recovered and stabilized above its pre-pandemic level. After Unemployment rate 7. 4 5.3 5.6 rebounding 4.5% in 2021, GDP growth expectations for this year and next have been revised down in recent months. Source: Statistics Canada, KPMG analysis. While another cycle from the ongoing pandemic could still Note: Average % change on previous calendar year except for the unemployment rate, disrupt Canada’s growth engine, restrictions for this coming which is the average annual rate. winter are anticipated to remain lighter than they have been in recent years. Some analysts are now forecasting a 1 The main catalyst for these downgraded expectations has short-lived recession for early 2023 . been the coordinated approach taken by global central banks to fight the current bout of inflation by slowing the demand side of the economy. In July, Canada’s overnight rate increased by 100 basis points (bps). The following hike of 75 bps on September 7th took the overnight rate to 3.25%, for a yearly tally of 300 bps so far – a pace of monetary tightening not seen since the mid-1990s following close to 15 years of accommodative monetary policy. Markets are pricing in another 50 bps hikes during the fall, as the Governing Council “judges that the policy interest rate will need to rise further”. It also stated that further changes in 2023 “will remain data-dependent”. In a rising rate environment, governments, consumers, and businesses will find their debt more expensive to roll over. Canadian residential real estate prices have already started feeling the pinch of tighter monetary policy. While higher rates will cause the economy to gradually slow, most analysts expect Canada to eke out positive growth for 2023, albeit at a rate slightly below potential. 1 See, for example: Desjardins, Economic and Financial Outlook (August 25, 2022); and RBC, Daily Economic Update (August 31, 2022). © 2022 Copyright owned by one or more of the KPMG International entities. KPMG International entities provide no services to clients. All rights reserved. 10