Finance Minister Eric Girard said that, for Quebec, “the most likely scenario for 2023 is not a recession; the probability of a recession is around 35%. Prime Minister François Legault said shortly that the risks were higher, that we were “50-50 with a recession” in Quebec.
Who is right? An accountant is not paid to make economic forecasts. So I go to an economist, the Minister of FinanceNational Bank economist and chief strategist Stéfane Marion replied with a tit for tat.
For him, the risks of recession in the United States exceed 50%, but in Quebec, he agrees with Minister Girard in his forecast of 35%.
Making predictions, especially about the future, is always difficult, if you’ll allow me a little humor! It is more complicated, in the current context, to fully understand how the elements of the economy will unfold in the next few weeks.
The Federal Reserve just sent a very strong message by raising its core rate by 75 basis points and also indicates that it will continue to act strongly in the coming months. The core rate is at 1.5-1.75% now and should reach 3.4% by the end of the year, the Fed forecasts, then 3.8% in 2023.
The Bank of Canada may also, in the process, raise its rate by 75 basis points by mid -July. The deputy governor of the institution, Paul Beaudry, told us recently, at Economy zone, with everything on the table. It should come as no surprise to see the central bank act as aggressively as the Federal Reserve in its next step.
Raising rates at such a pace will slow down consumer demand and therefore the economy. Up to what point? That’s the question! Could such a steep rate increase push the economy into recession?
High risk of recession?
Recently, the FinancialTimes said that 70% of economists surveyed daily predicted a recession in the United States in 2023.
Can we say the same for Quebec? To tell you the truth, I do not knowresponse of former finance minister, Carlos Leitao, to Economy zone Tuesday night. I asked him for his opinion as an economist and not as a politician on the eve of a new election, in which he would not participate.
All I know is that we are in a situation where inflation is very high and will remain very high. Interest rates are rising, probably faster than we thought. And this scenario of very strong economic slowdown and very high inflation, we haven’t seen that in a long time. And citizens don’t know how to adjust there. So the feeling of economic or financial uncertainty is very strong. Maybe 30, 40 years have passed since we saw that feeling.
For Desjardins Chief Economist Jimmy Jean, the risk of a recession in 2023. Once the volume of the rate hike is over, we can better measure the real impact on inflation and economic growth.
However, can we escape a recession? This is a challenge that very few central bankers have overcomesaid Jimmy Jean to RDI on Wednesday. In such a tight labor market, rising wages, an economy running at full speed, efforts to achieve a soft landing have rarely been successful.
He recalls, we are already seeing the impact of rate increases in Canada on real estate. According to the Canadian Real Estate Association, the number of transactions dropped 8.6% in May compared to April, by nearly 22% annually. Real estate market activity has now returned to its pre -pandemic level.
Prices have fallen for a third consecutive month. Compared to the highest reached in February, prices have fallen by 10% in Ontario and by 8.4% in British Columbia. Quebec was resistant once prices rose 1.1%.
Economic … and political risks?
Always worried for the politicians in power to come during the election with the economy running out of steam. By provoking a 50% risk of recession in Quebec, Premier Legault is possibly trying to take the lead by showing that his government understands what is happening.
Citizens understood that everything was worth more and inflation expectations were high. Rising charges are starting to have an impact and are causing serious concern to households with the most debt.
It is tempting for political parties to announce checks and tax cuts, but political leaders should be reminded that, in the context of high inflation, these are target measures that must be promised and implemented. square. These measures should be structural, should be aimed at improving the economic crowd of the unfortunate, those most affected by rising food and energy prices.
Injecting billions of dollars to promote stronger consumption works against the flow of central banks, by boosting inflation. In the midst of the election campaign, can this economic fact be understood?
Gérald Fillion (go to author page)
Source: Radio-Canada
