“Both economies are likely to contract for at least a quarter towards the end of the year,” the report said. Our outlook may not be called an official recession, but it will feel like one to many businesses and some workers. »
The United States in particular has already felt some of this pain, with output contracting in the second quarter of this year; however, the country is “probably not in recession, analyze the experts of BMO. In fact, recent data suggests that real GDP will rebound at least modestly in the third quarter. »
Although Canada fared better in the second quarter, the BMO report notes that more recent data suggests “activity is weakening”, and experts now forecast real GDP growth of just 1.0% in the third. trimester.
The global economy is not doing much better.
“The global economy continues to weaken, with Europe’s energy crisis threatening to tip the continent into recession, and pandemic-driven shutdowns in China casting a pall over Asia,” the report said.
And with inflation remaining high, central banks around the world are expected to continue to tighten monetary policy.
The Bank of Canada has already raised rates by 300 basis points.
“We expect a final hike of 50 basis points, to bring the rate up to 3.75%, in October, before the Bank puts itself on the sidelines of the economy and inflation”, predict the experts of BMO, adding that it will take until early 2024 for rates to start falling once more.
They expect the US Federal Reserve to continue raising rates in the range of 3.75% to 4.0%, with another 75 basis point hike on September 21, “followed by hikes of 50 and 25 basis points in the last two months of the year,” the report said.
There are already signs that inflationary pressures are starting to ease, including lower commodity prices and reduced bottlenecks in supply chains.
“Perhaps the best news is that most measures of long-term inflation expectations have come down slightly, giving central banks some breathing room,” BMO experts said.
Nevertheless, it will take time for inflation to subside, the report notes.
“Stubborn inflation continues to pose the greatest threat to the economy,” the report warns, adding that this would require even tighter monetary policy than currently expected.
“If that’s the case, there won’t be much debate regarding whether the economy can avoid a deep recession,” he concludes.
