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Full effects of high interest rates yet to be felt

The economy made a strong start to 2023, but we continue to expect a moderate recession this year as high interest rates feed through and the banking issues in the US weigh on exports. The downturn will help to pull CPI inflation to 2% by the end of 2023, allowing the Bank of Canada to start cutting interest rates. While our base case is that looser monetary policy will support a recovery in GDP growth from 0.7% this year to 1.4% in 2024 and 2.7% in 2025, elevated household debt means there is a risk of a deeper downturn and a slower recovery if financial conditions tighten significantly.

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