Inflation keeps rising, will recession follow? Experts say ‘batten down the hatches’

Will Canada's economy tip into recession? Economists say it's in the cards, and warn businesses could be forced into layoffs as interest rates rise to tackle inflation.

The Bank of Canada’s efforts to tamp down on persistent inflation are increasing the odds of pushing the economy into a recession in the next year, according to some economists.

Consumers should start preparing for a contraction now, experts say, as the threat of layoffs and leaner days looms on the horizon.

Armine Yalnizyan, economist and fellow with the Atkinson Institute, tells Global News that the odds of a recession “are nearing more than 50 per cent in the next six to 12 months.”

Canadian economic output has mostly shown signs of growth so far this year. But Yalnizyan points to the United States’ shrinking economy in the first quarter of 2022 and an increase in applications for jobless benefits south of the border as signs the economic cooling could come north sooner than later.

“I think it’s very difficult for Canada to duck a recession when the United States has one quarter of contraction,” she says.

James Orlando, a senior economist with TD Bank, agrees with Yalnizyan that there’s “an incredible level of synchronization” between the North American neighbours.

He, like many big bank economists, believes the Bank of Canada will follow the U.S. Federal Reserve’s lead in hiking interest rates 75 basis points in its next announcement July 13.

With Statistics Canada reporting that the annual rate of inflation soared to 7.7 per cent in May, the central bank will be pressured to act swiftly and show Canadians that it will take the necessary steps needed to stifle inflation, Orlando says.