There has been a lot of talk about the U.S. economy heading into a recession over the next 12-months. Whether that will happen or not is, of course, open for debate. But a growing number of economists now believe there is a much greater chance that the Canadian economy will slip into a recession over the next year.
Is There Really an 80% Chance of a Canadian Recession in 2020?
Some investors believe the Canadian economy is doing well and there is no chance it will slip into a recession any time soon. After all, Canada is home to one of the best economies. Or is it?More and more analysts are predicting the Canadian economy is not nearly as sound as some believe and that the chance of a recession is growing. Not only that, it could be a lot more damaging than most investors think.Economist David Rosenberg is one of the most bearish, pegging the odds of a Canadian recession at 80%. Rosenberg believes that in addition to the slowing global economy, the Canadian economy is being hurt by crude, condos, and cannabis. To combat the slowing Canadian economy, he believes the Bank of Canada will cut its key lending rate four times over the coming quarters.1
Not everyone is as bearish as Rosenberg. That said, few are very optimistic. Other economists see a 50% to 70% chance of a recession, noting the strength of Canada’s housing market as being “narrowly based.”
Is the Canadian Economy Really Slowing Down?
Is there really evidence to support the claims that a recession in Canada is imminent? The Canadian economy is definitely slowing down. Canada’s gross domestic product (GDP) is forecast to slow to 1.5% in 2019 from 1.9% in 2018.To be fair, U.S. GDP is also expected to slow in 2019, but not nearly as much. The U.S. economy is expected to expand 2.3% in 2019, down from previous guidance of 2.9%.The Canadian economy generally tracks quite closely to the U.S. economy, but over the last number of years, there has been a big divergence. Between 2006 and 2015, Canada’s real GDP growth followed closely with that of the U.S. Since then though, real GDP per capital advanced just 2.7%, versus 6.3% in the U.S.2
This leaves the Canadian economy vulnerable to a recession. Should Canada enter a recession, whether due to its own economic challenges or because of a slowing global economy, it will have a huge negative impact on Canadian equities and the Canadian dollar.
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- “David Rosenberg pegs Canada’s recession odds at 80% in ‘crude, condos and cannabis’ economy,” Financial Post, October 17, 2019; https://business.financialpost.com/news/economy/david-rosenberg-pegs-canadas-recession-odds-at-80-in-crude-condos-and-cannabis-economy.
- “Canada Real GDP Growth,” CEIC, last accessed October 21, 2019; https://www.ceicdata.com/en/indicator/canada/real-gdp-growth.
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