(Bloomberg) -- Inflation, labor shortages and rising interest rates will push the Canadian economy into a moderate recession next year, according to the Royal Bank of Canada.
The economy is expected to contract by annualized 0.5% pace in the second and third quarters of 2023, according to new forecasts from economists at Canada’s largest bank. Growth will average 0.8% next year, compared with 3.7% this year.
The recession will be moderate and short-lived by historical standards and can be reversed once inflation settles enough for central banks to lower rates, economists Claire Fan and Nathan Janzen said in a note on Thursday.
“Though higher rates will technically push Canada toward a contraction, the Bank of Canada now has little choice but to act,” Fan and Janzen said. “Inflation has been too strong for too long and is starting to creep into longer-run business and consumer expectations.”
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