Canada will have a more severe recession than the U.S. in 2023: Economist David Doyle
The North American economy could be pushed into a recession by next year, and the impact would likely be more pronounced in Canada than the U.S., according to one economist.
David Doyle, the head of economics at Macquarie Group, said much of it comes down to Canada’s economic reliance on the housing market.
"When [Canada] has recessions, the lion’s share of the weakness in gross domestic product tends to come from residential investment," he said.
He pointed out 10 per cent of Canada's GDP growth comes from housing activity, while it makes up less than five per cent of GDP in the U.S.
The effects of Bank of Canada rate hikes have already begun to cool housing activity. National home sales and prices fell in May compared to the month prior, according to the Canadian Real Estate Association.
“We think the effect of the recession will be much more severe in terms of the drawdown on GDP growth, in terms of how high unemployment will rise. That will be much more severe in Canada than what we foresee in the United States,” he said.
"In the U.S., we're looking to three to four quarters of softness or contraction in GDP. In Canada, it might be a quarter or two longer than that," he added.
Since "inflation has run too hot for too long,” Doyle said central banks are now "boxed in" when it comes to monetary policy options — leaving them with no choice but to hike rates despite slowing growth and a weakening economy, he added.
"We think that combination will tilt the North American economy, both the U.S. and Canada, into a recession in 2023," he said.