Higher interest rates will leave economy vulnerable

Despite a weak start to the year, we expect GDP to rise by 3.6% in 2022 due to broad-based gains in consumption, business investment and net trade. Against that backdrop, the Bank of Canada is set to raise interest rates four times in 2022. As higher borrowing costs will take a heavy toll on the housing market and residential investment, however, we expect quarterly GDP growth to slow to below its potential rate in 2023 and expect the Bank to pause its tightening cycle earlier than most anticipate.