Canada will enter recession in the first quarter of 2023 due to the sharp rise in interest rates, anticipated by one of the country’s main financial institutions, the Royal Bank of Canada (RBC).

Earlier, the bank had signaled that Canada would enter a moderate recession in the second quarter of 2023.

RBC explained in an analysis that its economists expect interest rates in Canada will be placed slightly above 4%, and between 4.5 and 4.75% in the United States, which will bring forward the arrival of the recession in the first quarter of 2023.

Although 2022 started with interest rates in Canada at 0.25%, the figure now stands at 3.25% after successive hikes including the unexpected 1 point rise in July.

At the beginning of September, the Bank of Canada raised its rates again by 0.75 points, leaving the index at 3.25% currently, in an attempt to control the growth of inflation which, in July, amounted to 7.6%.

RBC has indicated that the Bank of CCanada will stop raising interest rates by the end of 2022. But he warned that this will depend on controlling inflationary pressures.

The analysis predicts thatthe manufacturing sector it will be the first to feel the effects of the economic contraction.

Rising interest rates and inflation will reduce the average purchasing power of Canadian households by about C$3,000 (US$2,160) in 2024, the RBC study adds.

The shrinking economy will also translate into higher unemployment, which RBC estimates could reach 7% by the end of next year. In July, the unemployment rate was 4.9%.