Canada will enter a recession in the first quarter of 2023 due to the sharp rise in interest rates, as 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 to be placed slightly above 4%, and between 4.5 and 4.75% in the United States, which will push the arrival of the recession in the first quarter of 2023.

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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 rates again by 0.75 points, leaving the index at 3.25% currently, in an attempt to control the growth of inflation, which stood at 7.6 % in July.

RBC has indicated that the Bank of Canada will stop raising interest rates at the end of 2022. But it warned that this will depend on containing inflationary pressures.
The analysis predicts that the manufacturing sector will be the first to feel the effects of a shrinking economy.

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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%. EFE