Canada’s recent housing and Inflation crisis may be snowballing into a recession officials warn
Matthew Hillier, Staff Writer
The United Nations’ (UN) major financial agency, The International Monetary Fund (IMF) has officially downgraded its economic forecasts for 2023, and ominously reported that the risk of North American recession is now over 50 per cent. In an article by Financial Post, global economic growth has decreased from 2.9 per cent to 2.7 per cent with further decreases on the horizon. This is a drop of six per cent in 2021 as concerns over inflation, housing and economic recovery from COVID-19 continue to take their toll on local and international markets.
According to the World Bank, the IMF “serves to stabilize the international monetary system and acts as a monitor of the world’s currencies.”
Ben May, the Oxford Economics director of global macro research in an interview with Financial Post speculates on the effects of this possible recession and disagrees with the IMF’s findings.
“The IMF estimates that global growth in 2023 will be similar to 2019 – soft, but not a disaster – and that a global recession will likely be avoided. By contrast, our forecasts are much weaker and we think the global economy is on the cusp of recession, our relative pessimism is particularly pronounced for the U.S. and Canada,” May remarks.
Financial Post speculates that Canada’s possible economic downfall may be driven by its unreliable housing markets.
According to CBC News, The Bank of Canada has continued to hike mortgage prices and borrowing costs to curb the decreasing cost of home ownership. With rising inflation being a key concern in both the local and international housing market, many banks have taken steps to curb rising inflation for themselves and their customers by hiking interest rates.
According to Financial Post, Bank of Canada governor Tiff Macklem stated that even more interest rate hikes are needed to curb the even greater predicted rise in inflation.
Chief North America economist from Capital Economics Paul Ashworth, in an interview with Financial Post, speculates on the downsides of this recent move from Canada’s banks.
“In Canada’s case, the biggest risk is still the one hiding in plain sight – the massive decade-long boom in house prices and the accompanying surge in household debt.”
“The big risks are still that adverse feedback loops develop either between housing and the real economy – as a recession pushes up the unemployment rate, triggering a rise in mortgage defaults – or between housing and the financial system – with lower house prices triggering losses at mortgage lenders, leading to tighter credit conditions,” Ashworth adds.
According to The Globe and Mail, The Bank of Canada released quarterly statements on consumer and business confidence, showing that the rise in interest rates and the reduced spending power for these consumers has resulted in a huge drop in confidence for The Bank of Canada.
In a statement given to The Globe and Mail in response to Macklem’s expecting to announce another rate hike on behalf of The Bank of Canada, Clarie Fan, an economist for the Royal Bank of Canada, doesn’t expect Macklem to be wrong.
“Despite improving signs in today’s survey results, price pressures currently are still too high and broad to reverse quickly. And we don’t expect the Bank of Canada to ease off the monetary policy brakes until policymakers are confident that inflation will slow substantially and sustainably.”
It seems like only a matter of time before Canadians see how these possible solutions to Canada’s and the larger international financial communities’ troubles pan out.