Stats Canada has released the third quarter GDP reading, showing the Canadian economy shrank by 1.1 per cent on an annualized basis — and just narrowly avoided falling into a recession.
A technical recession is defined as two consecutive quarters of contracting economic output.
But because Stats Canada revised the second-quarter GDP data to 1.4% growth from what was previously reported as a 0.2% decline, the technical recession has been avoided.
Recent months have witnessed a rapid cooling of the Canadian economy.
In September, the Bank of Canada opted to maintain its current interest rate at 5%. The statement emphasized the bank’s readiness to consider additional increases in the policy interest rate if deemed necessary.
Simultaneously, it conveyed ongoing concerns regarding the enduring presence of underlying inflationary pressures in the economic landscape.
CMHC warns of rising interest rates, “shocks that lie ahead”
The Canada Mortgage and Housing Corporation (CMHC) recently released a report predicting even more rising interest rates, reaching approximately 6-7%, the timing of which couldn’t be worse for many homeowners.
“This steep interest rate hike is coinciding with a time when households are facing historically high levels of debt and higher cost of living,” CMHC’s report stated.
Since March 2022, one-third of homeowners with mortgages have experienced gradual hikes in their monthly mortgage payments.
This rising rates hit particularly hard for those with variable-rate terms, as indicated by CMHC: “In the first half of 2023, more than 290,000 mortgage borrowers renewed their mortgage with a chartered bank at a higher interest rate: from 5.45% for a 5-year fixed rate to 7.38% for a variable rate.”
The report also states that in the next two years, a staggering 45% of all outstanding mortgages will be up for renewal where the homeowners will experience “interest rate shock.”