“Growth for the next three quarters is about flat, which means we’re about as likely to have a few quarters of negative growth as we are to have a few quarters of positive growth,” Macklem told the Senate Banking Committee November 1.
“It’s not a severe recession. It’s not a major contraction, but you could definitely get a few quarters of negative growth. »
A recession is defined as two consecutive quarters of negative economic growth.
The Bank of Canada raised its policy rate by 50 basis points, or half a percentage point, on October 26, bringing the rate to 3.75%. The bank’s interest rate has now risen 3.5% since March, and the Bank of Canada’s legal adviser has said he expects the rate to have to “rise further” further in the future. coming.
“Our projection has a path for interest rates,” Macklem told the banking committee.
“We are getting closer to the end of this tightening phase, but we are not there yet and we believe that interest rates will have to rise further.”
Macklem added that the Bank of Canada expects a “very significant slowdown…with near-zero growth for the next few quarters,” but said it won’t be “as severe as some other countries” due to the strength of the economy. export from Canada.
“The things we sell to the world are now worth more,” he said. “It brings more revenue into our economy.”
Macklem said he expects Canada inflation rate – which currently stands at 7% – to fall to 2% by the end of 2024.
Although Macklem said the bank does not expect a severe recession, he did not rule out the possibility that it could occur if high inflation rates persist despite rising interest rates.
“Canadians will continue to struggle with high inflation and will expect persistently high inflation, which will require much higher interest rates and potentially a severe recession to control inflation,” he said. -he declares.
“If we do too much, we could slow the economy down more than necessary.”
Need for competition
High rates of inflation over a long period could cause Canadians to become accustomed to higher-than-normal prices, which would suppress economic competition and prolong inflated costs, Macklem said.
“We need to get back to a situation where companies are more worried about losing customers if they raise prices,” he said.
Right now, the Canadian economy is in a state of excess demand coupled with low supply, Macklem said, which can lead to higher prices.
“When you have an economy in excess demand, if you’re a business and you can deliver the product, then it’s easier to pass on those prices.”
Senator Hassan Yussuff pointed out that inflation affects Canadians unequally, with low-income people feeling the hardship most acutely from their devaluing money.
“How do they survive?” Yussuff asked.
“We share your concern,” Macklem said. He added, however, that the Canadian economy still needs “a period of weak growth” to bring prices down.
“Unfortunately, this will affect the most vulnerable workers the most,” he said. “It will be a difficult transition for some, but there really is no alternative.”
“We need to get through this period to relieve these price pressures, to bring inflation down, so that we can get back to sustainable growth with low inflation.”
Rahul Vaidyanath contributed to this report.