Bank of Canada Governor Cautions ‘Technical Recession’ Remains Possibility

The Bank of Canada building in Ottawa in a file photo. (Sean Kilpatrick/The Canadian Press)

Bank of Canada Governor Tiff Macklem told the Calgary Chamber of Commerce the economy isn’t heading toward a recession, before retracting his statement and cautioning a “technical recession”—defined as consecutive quarterly declines—remains a possibility.

“I don’t think we are in a recession,” Blacklock’s Reporter quoted Mr. Macklem saying during his Sept. 7 speech. “Where we are headed, of course, no one can know the future for certain.”

Mr. Macklem delivered his speech the day after the central bank held its overnight lending rate at 5 percent, which it attributed to economic activity declining in the second quarter, with three straight months of rising unemployment.

The central bank expects the Canadian economy’s feeble growth in recent quarters—the last three averaged below 1 percent—to persist, although he didn’t say for how long. However, Mr. Macklem anticipates those tailwinds will turn into headwinds.

“Is that a recession? No, that is not a recession,” he said. “But I will say if you are forecasting very small positives, you can’t rule out that you could get a couple of small negatives.”

He added that slower growth will moderate and stabilize pricing for consumer goods, and reverse languid economic conditions before sparking fresh growth. The latter, he said, would put downward pressure on interest rates and lower inflation. Canada’s Consumer Price Index rose to 3.3 percent in July, from 2.8 percent in June.

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The unemployment rate remained at 5.5 percent in July, as 40,000 new jobs were added to the labour force. Robust job growth—led by employment in professional, scientific, and technical services, as well as in construction trades—has been supported by record population growth.

Mr. Macklem praised Canada’s ability to attract labour globally, but said productivity is hampered by “structural issues” like high transportation costs, and an excess of small- and medium-sized businesses that have limited resources.

“We have a wonderfully diversified economy: abundant natural resources, vibrant manufacturing sector, big service sector,” he said. “We’re very good at growing workers; we’re not very good at growing output per worker.”

Rising interest rates—the central bank has hiked its lending rate 10 times since March of last year—have already adversely affected the labour force. There were 100,000 layoffs in Canada’s tech sector through the first six weeks of the year, following 160,000 in 2022.

And a mid-August report from Scotiabank warned the Bank of Canada (BoC) will fail its mandate of keeping inflation at 2 percent if it doesn’t stay the course on its monetary tightening policy.

“The BoC needs to continue to raise its policy rate in my opinion,” wrote Scotiabank economist Derek Holt. “I’m of the ongoing view that, politics and pressures aside, it needs to crush inflation risk and remain adherent to its principal mandate. It is at high risk to losing the fight.”