Strong immigration and the turnaround in the housing market raise the chance that the economy will avoid recession but, with the Bank of Canada back in hiking mode, we still judge that GDP will contract later this year. Even if recession is avoided, a sustained period of below-potential GDP growth and a rise in unemployment will ease inflationary pressures, with headline CPI inflation falling back to the 2.0% target by mid-2024. That will allow the Bank to cut interest rates to 3.0% next year.
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