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Economic outlook | January 2023

Interest rate increases bite, leading to deeper recession

With interest rates increasing, inflation slowing and the Canadian economy entering a recession in addition to the US and Europe, this quarters outlook looks at the factors supporting the negative turn in sentiment.

The Bank is expected to begin reversing its policy stance by the end of this year. Monetary easing is expected to continue throughout 2024 as the Bank slowly brings interest rates back down. With the economy shrinking, inflation is expected to decelerate sharply this year decelerating steadily since hitting 8.1% in June of last year.

Despite the expected pause in interest rate increases, mortgage rates will remain elevated until the end of 2023, preventing many prospective homebuyers from entering the market and leading to further declines in home ownership transfer costs and renovations. Businesses looking to invest are also facing higher borrowing costs, acting as a headwind to their spending.

Traditionally, recessions are associated with job losses and cautious business decisions when it comes to growth and payroll, however this is not the case for the labour market outlook. Given the tight labour market conditions employers are expected to be reluctant to let go of their employees as it might be difficult to find people to fill those vacant positions once the economy begins to recover through 2024.

The European Central Bank and the US Federal Reserve are also embarking on rapid tightening campaigns which are expected to tip these economies into recession. While a recession has been expected in the eurozone for months, the downgraded outlook for the US is hitting the Canadian outlook hard given our trade dependence with our southern neighbours.

The economic outlook remains clouded in uncertainty. The biggest risk to the outlook is that past interest rate increases may be more impactful than anticipated, leading to a deeper and more protracted global downturn. Scenario analysis that accounts for upside and downside risk to the economic outlook allows companies to assess how revenues and profits could change under different circumstances.

Quarterly economic outlook
Interest rate increases bite, leading to deeper recession

Read the report
January 2023

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Key contact


Trevin Stratton, National Leader and Partner, Economic Advisory, Deloitte Canada, Americas Leader, Economic Advisory, Deloitte Global

Trevin Stratton

National Leader and Partner, Economic Advisory, Deloitte Canada
tstratton@deloitte.ca
613-786-9014

Dr. Trevin Stratton is a national Economic Advisory leader and partner at Deloitte Canada and Economic Advisory leader at Deloitte Global, where he helps business leaders tackle today’s most complex and challenging economic issues. Prior to joining Deloitte, he was the chief economist and senior vice president of policy at the Canadian Chamber of Commerce. He has advised senior federal and provincial policymakers and government officials, including at the Prime Minister’s Office and the Bank of Canada, and C-suite business leaders on economic policy, development, and strategy.

Trevin earned his PhD at the Graduate Institute of International and Development Studies in Switzerland. He has held appointments as an international scholar at Yale University's Jackson Institute for Global Affairs, an E.C. Harwood Fellow at the American Institute for Economic Research, and a lecturer in economics, politics, and international studies at the American University in Dubai. He also holds a certificate in economic development from the University of Waterloo.

Currently a vice chair of the Business at OECD Economic Policy Committee, he’s also a frequent media contributor on economic issues for programs such as Power & Politics and BNN Bloomberg and publications such as The Globe and Mail and The Washington Post.

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