Canada Is Already In Recession, Hard Landing Expected

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Canada has slipped into a recession, according to a new forecast from prominent research firm Oxford Economics. Their analysis of the latest GDP data shows the economy contracted 0.3% in Q3 2022, marking an official start to the downturn.

Oxford sees Canada headed towards a moderate recession that creates further slack in the economy and eases price pressures. “We believe the recession will help bring headline CPI inflation back to the 2% target by late 2024,” explains Tony Still, Director of Canada Economics at the firm.

BoC Overestimating Economy’s Resilience?

The projected timeline for taming inflation is much faster than the Bank of Canada anticipates. The BoC still forecasts a soft landing for the economy, with inflation returning to a 2% target in late 2025 following gradual cooling. This is roughly one year later than Oxford’s recession outlook.

The disparity highlights how overly optimistic the BoC's model may be regarding economic resilience. “Clearly, the central bank has overestimated underlying momentum and the economy’s ability to weather aggressive rate hikes,” adds Still.?

Peak Rates and Cuts Dependent on Recession Severity

The extent and duration of the recession will significantly influence interest rate trajectories. Most consumers and businesses hope for rapid rate cuts to ease debt burdens. But Oxford warns that a shallow recession may warrant even higher peak rates to quash persistent inflation.

“Our soft landing scenario suggests the BoC would likely have to raise rates further, ending its pause and hiking another 50 basis points to 5.5% by mid-2024,” cautions Still. “Whereas our hard landing baseline brings cuts starting in 2025.”

Combining Stocks and Alternatives to Hedge Risks?

Worried about protecting your wealth against the repercussions of a hard landing for the Canadian economy? Consider diversifying into alternative assets like private equity, real estate, infrastructure, and commodities, which can provide downside protection against a stock market crash.

Consider hiring a Private Portfolio Manager to create customized portfolios that strategically allocate up to 35% of your investments into alternative assets unavailable to average investors. This provides tailored portfolio protection while meeting your risk preferences, time horizon and liquidity needs.

To learn more about how alternatives can mitigate the effects of a hard landing, contact me at 604.613.1693. Alternatively, you can email me at [email protected]. Together, we can build an inflation-resistant portfolio designed to preserve your hard-earned wealth.

The source article, linked here, provides full details: Canada Already In Recession, Hard Landing To Cool Inflation: Oxford Econ.

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