Strong immigration and the resilience of the housing market raise the chance that the economy will avoid recession but, with the Bank of Canada keeping further rate hikes on the table, 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 in the second half of 2024. That will allow the Bank to cut interest rates to 3.0% next year.
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