The ongoing pandemic, inflation, and war have sent shockwaves through the Canadian and global economies, leading to concerns about recession. Market expectations built into the yield curve suggest the probability of a recession in Canada over the next 12 months stands at about 50-50.
It is challenging right now to forecast where the economy is headed, given the global situation and the many risks it poses. Those risks include a loss of credibility in central banks’ ability to quell inflation; a collapse in asset values due to higher interest rates; further COVID-related health measures; and an escalation of Russia’s war on Ukraine.
However, Canada’s labour market is tight, household savings levels are high, and business profits are solid. Based on these factors our call is that Canada will avert a recession.