Canada’s economy faced significant challenges at the end of 2023, entering what experts call a “technical recession.” This downturn was highlighted in a recent report from the Canadian Federation of Independent Business (CFIB), which projected a contraction in the country’s economy.

According to the CFIB, Canada’s economy shrank by 0.2% in the last quarter of 2023. This followed a slight decrease in the real Gross Domestic Product (GDP) during the third quarter, as reported by Statistics Canada. If these figures hold, it would mark two consecutive quarters of GDP decline – a classic indicator of a technical recession.

While official data from StatCan for the fourth quarter of 2023 is still pending, initial reports suggest that economic growth was stagnant at the beginning of the third quarter, with a potential upturn in November.

Signs of Hope Amidst Economic Strain

Despite these challenging times, the CFIB’s forecast offers a glimmer of hope, predicting a modest 0.5% economic growth during the first quarter of the new year.

Simon Gaudreault, CFIB’s chief economist and vice president of research, commented on the situation. He indicated that while the fourth quarter of 2023 seemed bleak, the overall economic landscape was more nuanced. Business sales and employment showed resilience, but there was a notable lack of optimism among CFIB members. Manufacturing businesses, in particular, were facing a tough time with reduced domestic and international demand.

Another area of concern was business investment. According to CFIB surveys, investment plans were at a historic low, attributed to general uncertainty, cost pressures, and tax increases. This reluctance to invest has been seen as a weakness in Canada’s economy, potentially fueling inflation and a dependency on immigration for economic growth.

The Road Ahead: Inflation and Interest Rates

Looking ahead, the CFIB anticipates an average inflation rate of 3.1% for 2024, which is lower than in previous years. Many businesses are considering price increases, though the number planning to do so is fewer than in the past, aligning with recent Bank of Canada survey findings.

The CFIB’s report was released just before the Bank of Canada’s first interest rate decision of the year. There was widespread expectation that the central bank would maintain its policy rate. The Bank of Canada was also set to release its revised projections for inflation and the national economy.

Given the economic slowdown and the breadth of challenges facing small businesses, the CFIB urged the Bank of Canada to consider making monetary policy less restrictive starting from the next spring. This call reflects the pressing need to support small businesses and stimulate economic growth in the face of ongoing challenges.

Source: https://globalnews.ca/news/10244065/cfib-technical-recession-2023-forecast/