Bank of Canada says 2023 'will not feel good' for taxpayers

Macklem, in a November 1 testimony at the Senate banking committee, predicted a short recession in Canada. He says, 'It’s not a severe recession.'

Bank of Canada says 2023 'will not feel good' for taxpayers
Etienne Martin on Unsplash
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According to the Bank of Canada, 2023 is "not going to feel good" for taxpayers.

"The economy is slowing, and we expect it will continue to slow," said Bank of Canada Governor Tiff Macklem. "We expect growth through the next two, three quarters to be close to zero."

"That is an economy that is stalled. It is not going to feel good. That is no growth."

Macklem claimed Wednesday that another increase in the bank’s prime rate would lead to a recession.

The Bank raised its benchmark rate on interbank loans by a quarter point to 4.5%, up considerably from 0.25% in the same period last year. The following rate review is due March 8.

Macklem said a further increase is not imminent. "Now it’s time to pause," he said.

Macklem told reporters that despite the fear of a long-forecast recession, Canada is turning the corner on inflation. He said costlier interest rates "are slowing household spending" amid the worst inflation in 40 years.

However, Statistics Canada's latest consumer price index unveiled that grocery prices soared precipitously last month over one year. Grocery prices rose 9.8%, marking the fastest pace since 1981.

Rising energy prices also contributed significantly to high inflation last year, as consumers paid 28.5% more for gasoline in 2022 annually. But Canadians spent 13.1% less at the pumps than in November, according to the federal agency, with crude prices dropping as concerns of a global recession near.

The country's annual inflation rate peaked last summer at 8.1% and slowly fell to 6.8% in November, garnering some optimism despite a looming global recession. The average inflation rate in 2022 topped a four-decade high at 6.8% and doubled from the previous year.

"Where is this confidence coming from that inflation is getting back under control?" asked a reporter. "I don’t want to minimize the risks," replied Macklem.

Opposition leader Pierre Poilievre called the interest rate rise, the eighth in ten months, a "sucker punch" for Canadians who believed Bank of Canada forecasts. 

"A sucker punch, that’s what the Trudeau government hit Canadians with today by increasing interest rates after Trudeau and his government promised rates would stay low for long."

"Should the Bank of Canada governor be fired?" asked a reporter. "Of course," replied Poilievre.

In a July 15, 2020 forecast, the Bank predicted continued low-interest rates. 

"We recognize households and businesses are facing an unusual amount of uncertainty," said Macklem. "Against that backdrop, we are being unusually clear that interest rates will be low for a long time."

In a Monetary Policy report, the Bank of Canada forecasts inflation and interest rates will remain above pre-pandemic levels well into 2024. 

"Higher unemployment could undermine homebuyer sentiment and lead to a larger than expected drop in house prices," said the report. "This, in turn, could reduce household wealth, access to credit, and consumer confidence."

As a result, consumer spending is expected to remain down through much of 2023, according to the Bank.

"The rise in borrowing costs is expected to continue to strain many household budgets."

Macklem, in a November 1 testimony at the Senate banking committee, predicted a short recession in Canada. "It’s not a severe recession," he said. 

Finance Minister Chrystia Freeland, in a November 3 Fall Economic Statement, confirmed a probable recession. "Our economy is slowing down," Freeland told the House of Commons.

Yet, she remained convinced that the Fall Economic Statement is "building an economy that works for everyone — an economy that creates good jobs and makes life more affordable for Canadians."

In addressing affordability and green energy initiatives, the finance minister claimed, "The investments we are making today will make Canada more sustainable and prosperous for generations to come."

Other forecasters, including former Parliamentary Budget Officer Kevin Page, told the Senate banking committee on December 1 that he predicted a recession that would "hurt small businesses significantly."

David Dodge, former central bank governor, testified on September 23 that Canadians should expect job losses. "Unemployment is going to rise," said Dodge.

"Zero growth rates after a period of 3% growth at annual rates that we’ve recently had is not going to feel so good," he added. "Yes, that’s going to happen."

According to the Canadian Taxpayers Federation, the Trudeau Liberals incurred a $36.4 billion deficit and spent $20.2 billion more than estimated in Budget 2022.

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