Despite the alarm sounded by the Bank of Canada regarding household debt and soaring house prices, the possibility of a recession does not worry the Quebec Minister of Finance, Eric Girard.
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“We have a forecast for 2023 of 2% growth, explained the minister in the corridors of the National Assembly. What the Bank of Canada expressed yesterday is that real estate, household debt, these are vulnerabilities, and the tightening of monetary functions is exacerbating those vulnerabilities.”
Mr. Girard was referring to statements by Bank of Canada Governor Tiff Macklem, who said Thursday that household debt and rising housing prices are putting Canada’s financial system in an uncomfortable position.
“But that does not mean that there will be a recession there, added the Minister of Finance. The most likely scenario is that there will be moderate growth at 2%.”
In fact, for the scenario of a recession to materialize, it would take the concomitance of a series of factors, explained Tiff Macklem. Household indebtedness and rising house prices should be compounded by a net slowdown in the economy and an increase in the unemployment rate.
“A loss of income would likely force highly indebted households to significantly cut back on spending to keep making their mortgage payments. Moreover, a major correction in house prices would reduce household wealth and access to credit, especially among the most indebted. If many households find themselves in this situation, there might be broad implications for the economy and the financial system,” Macklem said.
