In the wake of the Bank of Canada maintaining its key interest rate at five per cent, expert economists have voiced concerns about the impact of inflation on future rate hikes. Amid these discussions, there’s a rising spectre of a potential recession.
“On the brink of a precipice,” articulates David Macdonald, a veteran economist with the Canadian Centre for Policy Alternatives. He underscores the delicate balancing act Canada currently finds itself in, stating, “it requires just a slight nudge for us to land in the negative zone.”
According to Macdonald, Canada has been in a precarious situation since February, with the economy demonstrating signs of stagnation. Yet, there has been no significant dip in the real GDP – a crucial gauge measuring the nation’s economic performance over the previous year.
Nevertheless, Macdonald stresses the ominous possibility of an economic contraction. He attributes this risk to the unsettling absence of sustainable progressive growth.
The ramifications of increased interest rates are already being felt, says Macdonald. Prime evidence of this is observed in the substantial slowdown in residential construction – a sector that has been a major catalyst for Canada’s economic growth for several decades. “People simply can’t afford new homes. The mortgage payments would be exorbitant,” he explains.
However, despite the Bank of Canada’s recent decision to hold back on elevating the key interest rate, Macdonald believes there’s still room for further hikes – particularly if key inflation indicators continue to remain high. Even as he puts forth a dim forecast, “We’re unlikely to witness any rate reductions,” Macdonald predicts, “And if inflation continues to be high…we could potentially brace ourselves for another rate increase.”