Posthate: Why Canada’s economy may be in more trouble than the IMF thinks

Canada’s recession will be worse than the United States, economists say

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Good morning!

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The International Monetary Fund lowered its forecast for economic growth last week, but some believe it didn’t go far enough.

Oxford Economics, for its part, believes that the IMF is underestimating the impact that rising interest rates and the loss of wealth due to falling asset and house prices will have on advanced economies.

“The IMF estimates that global growth in 2023 will be similar to that of 2019 – weak, but not catastrophic – and that a global recession will probably be avoided. By contrast, our forecast is much weaker and we believe the global economy is on the verge of recession,” Ben May, director of global macroeconomic research at Oxford Economics, wrote in a note Thursday.

Oxford names Canada, the United States and most of Europe as most at risk of recession and “our relative pessimism is particularly pronounced for the United States and Canada,” May said.

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Especially Canada. According to the Oxford forecast presented in the chart below, the Canadian economy should sink even further into the red than those of the United States or the United Kingdom.

In contrast, the IMF predicts that Canada’s GDP will grow by 1.5% in 2023.

Most economists agree that Canada’s Achilles’ heel is its housing market.

While Canada is unlikely to experience the financial turmoil currently raging in the UK, the important lesson of this scenario is that “when interest rates rise rapidly to levels not seen in a decade, things can break,” says Paul Ashworth, chief North American economist for Capital Economics.

“In the case of Canada, the biggest risk is still the one lurking in plain sight – the massive decade-long spike in house prices and the accompanying surge in household debt. .

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The decline in home prices has so far been orderly, but Ashworth says there is no guarantee it will remain so.

“The big risks are still that negative feedback loops develop either between housing and the real economy – as a recession pushes the unemployment rate up, triggering an increase in mortgage defaults – or between housing and the financial system – falling house prices leading to losses to mortgage lenders, leading to tighter credit conditions,” he said.

Economists at Macquarie Capital Markets say the headwinds for housing will gain strength in 2023 as the impact of rising variable-rate and fixed-rate mortgages peaks.

Weak housing has historically led to recessions, and despite a sharp decline in the second quarter, residential investment in Canada still accounts for a high percentage of GDP at 8.7%, they said.

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“We expect Canada to experience a deeper recession than the United States in 2023, with the unemployment rate rising by ˜5 ppt and real GDP contracting by 3%,” wrote economists David Doyle. and Neil Shankar.

Yet these are uncharted waters for economists and policymakers, as Oxford acknowledges, whose forecasts not only fall short of those of the IMF but also of the consensus.

“While there is general agreement about the nature of the shocks hitting economies, there is considerable uncertainty about the extent to which economic growth will slow in response,” May wrote.


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PROBLEM IN THE CONDO LAND Nervous investors looking to offload their pre-construction condos on the secondary market may be out of luck, writes Stephanie Hughes of the Financial Post. Real estate agents in the Greater Toronto Area have seen a flurry of calls from pre-construction buyers who now want to sell their purchase contracts, but stagnating condo prices are making it harder for them to exit their investments . An outsider to the industry said he had never seen the market so weak. Difficulties in the condominium market before construction could have more significant consequences for the economy. Read on to find out how. Photo by Frank Gunn/The Canadian Press


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  • Bank of Canada releases Business Outlook Survey and Consumer Expectations Survey
  • Carolyn Rogers, Senior Deputy Governor of the Bank of Canada, will participate in a panel discussion at the Toronto Centre’s 25th anniversary event. The theme of the panel will focus on challenges and opportunities for the financial system
  • François-Philippe Champagne, Minister of Innovation, Science and Industry, will make an announcement on support for innovative solutions to advance research and development and 5G networking in Canada
  • George Smitherman, CEO of the Cannabis Council of Canada; and several cannabis CEOs will hold a press conference to discuss the necessary measures in the cannabis industry on the occasion of the 4th anniversary since legalization in Canada
  • Nokia CEO Pekka Lundmark in Ottawa for an announcement alongside Innovation, Science and Industry Minister Francois-Philippe Champagne and Ontario Premier Doug Ford
  • The three-day Toronto Global Forum begins with guest speakers Banque de France Governor Francois Villeroy de Galhau and Irving Oil Chairman Ian Whitcomb
  • Steve Clark, Ontario Minister of Municipal Affairs and Housing, will make an announcement in Thunder Bay
  • Court hearing of former executives of CannTrust Holdings Inc.
  • Standing Committee on Foreign Affairs and International Development meets to discuss export of Russian Gazprom turbines
  • The Standing Committee on Finance meets on Bill C-228, An Act to amend the Bankruptcy and Insolvency Act, the Companies’ Creditors Arrangement Act and the Pension Benefits Standards Act
  • Standing Committee on Transport, Infrastructure and Communities Meets on Anticipated Labor Shortages in Canada’s Transportation Sector
  • The Standing Committee on Agriculture and Agri-Food Meets Regarding Bill C-234, An Act to Amend the Greenhouse Gas Pollution Pricing Act
  • Today’s data: Canadian building construction data for August
  • Earnings: Bank of America, Charles Schwab

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Home sales in Canada were quiet in September — “very, very quiet,” according to one economist. BMO senior economist Robert Kavcic said there were only two months in September when sales were slower – the 2010 recession and shortly after in 2012. Of the 26 cities tracked by the Canadian Real Estate Association, only Regina saw its sales increase. The steepest declines were seen in southern Ontario and around Vancouver.

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A stalemate in the market is one reason for stalled sales, Kavcic said. Higher borrowing rates mean more buyers can’t qualify or afford mortgages and “probably don’t want to catch any falling knives anyway,” he said. he declares. Sellers, meanwhile, can wait for better market conditions or, if they are investors, rent out their units.

“In other words, the market is not balancing right now – hence the lack of trading volumes,” Kavcic wrote in a note after the data was released on Friday.


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Today’s Posthaste was written by Pamela Heaven (@pamheaven), with additional reporting from The Canadian Press, Thomson Reuters and Bloomberg.

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