Canada likely in 'rounding error recession,' more trouble looming: economist

Canada in 'rounding error recession': economist CCPA economist David Macdonald says there's 'storm clouds on the horizon' for many homeowners who need to renew mortgages.

Statistics Canada has released new data about how the economy started off the third quarter, saying the country's GDP remains essentially unchanged. One economist says it highlights an ongoing trend of weak performance.

"The economy is flat-lining… we are not seeing any indications of strong growth," David Macdonald, a senior economist at the Canadian Centre for Policy Alternatives, told CTV News Channel's Akshay Tandon on Friday. "If we do end up in a recession, which is very plausible… (it) would be a rounding error recession at this point."

AN ONGOING TREND

As Canadian growth remains stuck in neutral for a second consecutive month, Macdonald explains it's becoming part of an "ongoing trend" for the country's economy.

"We've been going through this very weak growth… but at the same time, the interest rate has been rising," Macdonald said. "Usually we'd see the opposite… we'd see rates go down."

That's leading to a "very unusual" situation, warns Macdonald, because consumers aren't seeing any relief, even as growth slows.

MORTGAGE RISK

Some of the biggest "storm clouds on the horizon," according to Macdonald, are a result of Canada's incredibly tight housing prices and the large amount of mortgage debt many homeowners have taken on.

The Bank of Canada has been consistently hiking its benchmark interest rate since March 2022 and it could spell trouble as more long-term fixed rate mortgages come up for renewal, and it could tip Canada into a "real recession."

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"If we start looking… a year down the road, a lot more people have to renew their mortgages at much higher rates," Macdonald warned. "A lot of Canadians have been protected from these higher rates because they've got a five-year fixed."

MORE RATE HIKES?

As many Canadian homeowners struggle with the impact of higher payments, does that rule out more hikes from the Bank of Canada?

Not necessarily, says Macdonald, who warns that if October's inflation numbers are higher than expected it will "almost certainly" lead to another rate hike.

"The last data point on inflation… was a real surprise."

Click the video at the top of this article to watch the full one-on-one interview.