Bank of Canada (BoC) Governor Tiff Macklem has said Canada will not experience a “serious recession” in the coming months, although a slowdown is likely.
“The growth rate for the next three quarters is near zero, which means that negative growth is almost as likely as several quarters of positive growth,” Macklem said. Senate Banking Committee November 1st.
“It’s not a deep recession.
A recession is defined as two consecutive quarters of negative economic growth.
The Bank of Canada raised its key interest rate by 50 basis points (0.5 percentage points) on 26 October, raising the rate to 3.75%. Bank interest rates have now risen by 3.5% since March, and the BoC’s governing adviser said he expects interest rates will need to “rise further” in the future.
“There is a path for interest rates in our forecast,” Mr. Mackrem told the Banking Commission.
“We are nearing the end of this tightening phase, but we are not there yet and we believe rates will need to rise further,” he said.
Macklem added that the BoC is “forecasting a very significant slowdown, with growth near zero in the next few quarters”, but due to Canada’s export power it will be “as severe as some other countries”. not,’ he said.
“The goods we sell to the world are now worth more,” he said. “It’s bringing more income to our economy.”
Macklem said he expects inflation in Canada, currently at 7%, to drop to 2% by the end of 2024.
Macklem said the bank was not predicting a severe recession, but did not rule out the possibility of a recession if high inflation persisted despite rising interest rates.
“Canadians will continue to endure the pain of high inflation and come to expect it to remain high, requiring much higher interest rates and a potentially deep recession to keep inflation under control. will be needed,” he said.
“Too much can slow the economy down more than it needs to.”
the need for competition
A prolonged period of high inflation could cause Canadians to become accustomed to higher-than-usual prices, which could sap economic competition and prolong inflated costs, Macklem said.
“We need to go back to a situation where businesses are more worried that they will lose customers if they raise prices,” he said.
Currently, the Canadian economy is experiencing a combination of excess demand and low supply, which could lead to higher prices, Macklem said.
“When you have an economy of excess demand, it’s easier to pass on those prices if you’re a business and can deliver a product.”
Senator Hassan Yousaf noted that inflation affects Canadians disproportionately, with low-income earners suffering most as the value of their money declines.
“How will they survive?” Yusuf asked.
“We share your concerns,” said Macklem. But the Canadian economy needs a “period of low growth” to bring prices down, he added.
“Unfortunately, it will affect the most vulnerable workers the most,” he said. “It’s going to be a difficult transition for some, but there really isn’t an alternative.”
“We must get through this period to ease these price pressures, lower inflation and restore sustainable growth with low inflation,” he said.
Rahul Vaidyanath contributed to this report.
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Peter Wilson is a reporter based in Ontario, Canada.