Dec 8, 2022
Bank of Canada policy will 'hit home' in 2023: David Rosenberg
Canadian economic situation in 2023 will be clouded at best: David Rosenberg
The Bank of Canada may be signalling a possible end to its months-long aggressive interest-rate hike cycle, but economist David Rosenberg said next year will see the lagging impact of 2022’s monetary policy “hit home” for Canadians.
“Next year is the payback,” Rosenberg, chief economist and strategist at Rosenberg Research and Associates Inc., said in an interview with BNN Bloomberg.
“2022 was the year of the sharp run-up in rates, 2023 will be the year where the policy lags from those rising rates hit home.”
He made the comments Thursday, a day after the Bank of Canada raised its overnight lending rate by 50 basis points to 4.25 per cent, as the central bank continued with its approach to bringing down inflation.
Rosenberg predicted a “severe recession” for Canada next year based on the rate hike cycle, calling for a “triple whammy” with economic impacts compounded by high levels of household debt, a housing bubble and ripples in the global economy.
Possible spillover effects from the interest rate cycle could be felt, Rosenberg said, as banks may constrain the availability of credit and spending drops across various sectors.
Based on the latest rate increase, Rosenberg said he predicts at potentially one more rate hike from the bank before a pause. Once inflation starts to come down, Rosenberg said he thinks the central bank may start to cut rates, possibly in the second half of 2023.
“The next stage is going to be waiting for the inflation to come down, which I think it will, and the recession is going to catch a lot of people by surprise,” he said.
A similar pattern may play out in the U.S., but Rosenberg said Canadians are more exposed to higher interest rates through variable-rate mortgages and because more consumer credit is tied to short-term interest rates.
“As bad as it's going to be in the U.S., and believe me, it's not going to be a pretty picture there, I think the Canadian situation in the next year is going to be clouded at best,” he said.