Chances of Recession in Canada Go Up as Businesses Slump

The chances of a recession in Canada have gone up to around 45 per cent. However, analysts are predicting a higher likelihood of reduced growth rates. Canada managed to get a superior growth of GDP accounting for 3.7 per cent in the 2nd quarter of 2019. However, analysts have been warning businesses to prepare for a slowdown, which expects growth to reduce to around 1.4 per cent by the end of 2019 and a further reduction to 1.1 per cent for 2020.

Canada has been facing increased instances of overvalued housing prices, higher levels of household debt, weakening energy sector, stagnated investments to support exports and expanding operations capacity. These issues are restricting the country’s economy from recovering from the lower growth rates.

Tony Stillo, an economist at Oxford spoke about the issue saying: “Although a re-elected Liberal minority government is promising additional fiscal stimulus, risks remain tilted to the downside. The ongoing U.S.-China trade war, slowing growth in the U.S. and globally and a plethora of underlying domestic challenges are all weighing on the outlook, keeping odds of a recession at 45 per cent.”

Interest Rates Likely to Continue Unchanged

Projections have revealed that the Bank of Canada is unlikely to change interest rates. Research has said that it is not projecting recession to be imminent for Canada. However recession models based on yield curves are indicative of worrying times ahead.

Key factors that could tip Canada into a recession include increases in global trade tensions, and reduction of U.S. industrial activity. A forecast by the Bank of Nova Scotia is relatively moderate in terms of forecasted figures. However, this research also indicates uncertain times in the near future. It notes that a fiscal stimulus to the economy by Liberal post-election environment will not be adequate in reining in the economic slowdown.

Derek Holt, the head of capital markets, and vice president for Scotiabank stated: “Canada’s bloated upstream manufacturing and wholesale inventories may portend downside risk to employment and production going forward. Fiscal stimulus is unlikely to be a substitute for monetary stimulus and the Bank of Canada probably wouldn’t incorporate any such effects until they became more highly anticipated.”