The job market, which remains robust in the inflationary context, might plunge the country into a more severe recession than anticipated.
• Read also: The risk of a recession in 2023 is still 50%, estimates Girard
In the United States, we have just announced the creation of 517,000 jobs in January; a performance that seems “incredible,” according to Desjardins Group chief economist Jimmy Jean. And it is also “false good news”, our economy being closely linked to that of our neighbor to the south.
Photo taken from LinkedIn
Jimmy Jean, economist at Desjardins.
“The unemployment rate here might rise less than we think, recognizes Mr. Jean. If the overheating situation continues, there will be significant effects. »
“It might cause a recession more severe than we expected. »
Related savings
In Quebec, Desjardins forecasts an increase of almost two points in the unemployment rate to 5.6% at the end of 2023, and to 7% in Canada. But the job market is not yet showing signs of slowing down. The Canadian economy created 104,000 new jobs in December and the unemployment rate fell to 5%, close to its historic low.
If the labor market remains overheated, there will be more consumption and it is likely that wages will also be increased.
As the Bank of Canada is engaged in a fight once morest inflation, with the objective of bringing it back close to 2% by the end of the year, it may want to raise its key rate once more, which will further increase rates. of interest.
“This is a risk that should not be overlooked, like the risk that inflation will surprise us once more,” says economist Jimmy Jean.
Too strong a remedy?
Everything is difficult to predict because the economy is sending “conflicting signals” at the moment. At the same time as tech companies are shedding jobs, manufacturing is sluggish, retail sales are shrinking and real estate sales are taking a downward shock, the job market remains very strong.
According to Mr. Jean, central banks might nevertheless react too strongly to signals of overheating to break inflation.
“The risk is that by wanting to break something, it tumbles more severely than hoped for in the rest of the economy”, specifies Mr. Jean
The Mouvement Desjardins establishes at 25% the probability of falling into a recession more severe than anticipated.
The other elements that can push inflation up are linked to the geopolitical context. The instantaneous reopening of the Chinese economy might drive up commodity prices. An escalation of the conflict in Ukraine would also have profound impacts, according to Jean.
