I think we'll get through this cycle without a traditional recession: chief economist
The Bank of Canada is expressing more confidence that its rate hikes to date are slowing the economy and inflation, but experts are split on whether the central bank will nail a “soft landing” and avoid a deep recession.
On Wednesday, the Bank of Canada decided to hold interest rates at five per cent for the third consecutive time, in a move that was widely expected by economists.
In its rate announcement, the bank highlighted GDP contractions, stalling consumption and unemployment as factors behind its decision to hold again.
“Overall, these data and indicators for the fourth quarter suggest the economy is no longer in excess demand,” the central bank wrote in its Wednesday statement.
Economic data appears to be on the right track to bring inflation back to the bank’s target of two per cent, but Josh Sheluk, a portfolio manager with Verecan Capital Management, said he isn’t confident that a soft landing is possible.
“It's extremely difficult to achieve, I would think you're trying to thread a needle,” he told BNNBloomberg.ca in a phone interview on Wednesday.
“The way I've described it in the past is you're trying to cool a boiling pot of water exactly to room temperature using nothing but ice cubes and I just think it's extremely difficult to land that plane.”
Sheluk said historically, central banks are always trying to achieve a soft landing, but “very rarely” make it happen.
“I think the fact that you had to cool inflation from such a high level, and what they tried to do a relatively short period of time, makes it makes it very challenging,” he said. “The pace and the degree of rate hikes were very significant this time around.”
LABOUR MARKET CONDITIONS
Sherry Cooper, chief economist at Dominion Lending Centres, said she believes Canada’s labour market will help bring the economy back to the Bank of Canada’s target rate without too much additional pain.
“It’s only a matter of time before we see that the economy has slowed sufficiently, labour markets are tight enough that core inflation will, in fact, approach two per cent,” she told BNN Bloomberg in a television interview on Wednesday.
“I’m still in the soft landing camp. I think we may well get through this tightening cycle without a traditional recession.”
Cooper said Canada’s robust immigration strategy is distorting the unemployment numbers and making the economy seem weaker than it is.
“I think we’re going to continue to see the unemployment rate rise, which is really the relevant focus for the Bank of Canada,” she said.
Last week, Statistics Canada reported that Canada’s unemployment rate climbed to 5.8 per cent in November, as the country added 25,000 jobs in the month.
In its revised immigration targets, the federal government is planning to welcome 485,000 newcomers to the country in 2024, as the country looks to address labour shortages and an aging workforce.
“Our (employment) numbers have been distorted by the exceptional influx of new workers coming as a result of immigration and as a result, things are probably stronger than they actually seem,” Cooper said.