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If you thought 2022 was bad, wait until you see what 2023 has in store for the economy



For many Canadians, 2022 was a tough year as interest rates climbed, inflation soared and the economy slowed. Unfortunately, 2023 doesn’t look like it will provide much respite.

Analysts say a recession is looming and unemployment is expected to rise, all while prices remain high and interest rates bite into our purchasing power.

“We could be in store for a bit of a doozy [of a year],” said Royce Mendes, the managing director at Desjardins Capital Markets.

He says 2022 was dominated by rising prices and a rapid increase in borrowing costs. Inflation peaked this summer at 8.1 per cent on an annualized basis. The Bank of Canada’s key lending rate started the year at 0.25 per cent. Seven straight rate hikes have left borrowing costs four full percentage points higher.


Mendes says that sets up a difficult year ahead.

Last year “was a transition to an environment of higher prices and an environment of higher interest rates,” he told CBC News, adding that 2023 “will be a year where we have to live with it for a full year.”

Inflation will continue to dominate 2023

Even seasoned forecasters have found this a tricky period to navigate. The economy is awash in contradictions and the data are quite noisy.

“I’m coming up on my 10th anniversary as chief economist. I would say 2020 was the weirdest [year],” said BMO’s chief economist Douglas Porter. “But this [year’s] is a very odd cycle.”

He points to the end of the pandemic-related restrictions that weighed on the economy, the sharp rise in prices and the continued strength of the labour market as just a few of the countervailing forces at play.

A man stands on stage in front of floor-to-ceiling drapes.
Bank of Canada governor Tiff Macklem raised interest rates seven times in 2022. Here, he speaks during a lunch by the Business Council of British Columbia in downtown Vancouver on Dec. 12, 2022. (Jonathan Hayward/The Canadian Press)

Looking ahead, he says inflation will continue to dominate the economic story of 2023. BMO’s forecasts show inflation will remain stubbornly high, especially through the first half of the year.

He’s predicting the Bank of Canada has one more rate hike in store in January and will then hold rates at 4.5 per cent through the rest of 2023.

All that will continue to weigh on growth. And Porter says that phenomenon is not unique to Canada’s economy.

“I think the global economy as a whole will struggle to see much growth this year. We think the U.S. economy will essentially be flat in the coming years. So, exports are going to face a little bit of a challenge as well,” Porter told CBC News.

Recession forecast

Most private sector forecasts in Canada now assume there will be some kind of a recession in early 2023. Those forecasts assume that it will be short and mild.

But it doesn’t take much to nudge a short and shallow recession into something much worse. In fact, researchers at Oxford Economics believe Canada has already slipped into a recession.

“Canada has likely just entered a moderate recession that will last for much of 2023,” Tony Stillo, Oxford’s director of Canada economics, wrote in a note to clients. “Prevailing household debt and housing imbalances will mix with pandemic and geopolitical forces to make Canada’s recession deeper than most advanced economies.”

Whether you look at private sector forecasts like Oxford’s, or global outlooks from the International Monetary Fund and the Organisation for Economic Co-operation and Development, the emerging picture of 2023 is grim.

“There’s not a lot of positive stories for 2023, so it’s pretty easy to be pessimistic,” said Stephen Tapp, the chief economist at the Canadian Chamber of Commerce.

Tapp says there are plenty of risks to the downside. He says many Canadian companies took on debt during the darkest days of the pandemic and have now seen their debt payments skyrocket as interest rates rose.


Bank of Canada governor explains how far he’s willing to go to get inflation under control

In a wide-ranging interview, Bank of Canada governor Tiff Macklem says Canadians should expect more interest rate hikes, and a mild recession is possible, as the central bank continues its fight against inflation.

He also says the end of China’s zero-COVID policies can upset otherwise healing global supply chains.

But, Tapp agrees with most others, that inflation and interest rates will be the driving force in the economic landscape. And he says in spite of all the pessimism, he can see a path to economic recovery.

“If central banks are winning the war on inflation. If stubbornly high inflation starts to come down faster than markets have priced in, that’s going to be good news and markets could rally, confidence could come up and inflation expectations could anchor faster,” Tapp said.

Should bounce back

That could lead to a faster bounce back in economic growth. And eventually, it would open the door to a reduction in borrowing costs.

A recession has proven to be a pretty effective tool to bring down prices. When the economy shrinks, people don’t buy as much stuff. When they don’t buy as much stuff, prices begin to fall and rebalance with demand.

It can be a painful process, especially when that contraction sweeps into your particular corner of the economy. But, Mendes says that painful part of the process shouldn’t last very long.

“While it won’t be a pleasant year, it will be a year in which hopefully there is meaningful progress made in reattaining the ultimate goal of low and stable inflation.”

In a lot of ways, 2023 will be a mirror image of 2022. Last year started out strong and ended weak and steeped in pessimism. 2023 will begin weak and should end strong.

By this time next year, the economy should have rebounded, inflation should have come under control and there should be a healthy dose of optimism that the Bank of Canada is getting ready to cut interest rates again.

But that’s probably more “shoulds” than most Canadians are comfortable with.

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To save Egypt's economy, get the army out of it – The Economist



TO THE LIST of spectacular ruins across Egypt, you can now add its economy. The Egyptian pound lost half its value over the past year and has been the world’s worst-performing currency in 2023. On January 5th the government devalued it for the third time in less than a year. Nearly half of the state’s revenue goes to servicing its debts, which amount to 90% of GDP. Officially, inflation is running at 21%. The price of food is rising even faster. But official figures have not kept up with Egypt’s economic decline, so the reality is almost certainly worse.

This has brought misery to the Egyptian people. Around a third of them live on less than $2 a day. Another third are on the brink of joining them. They have been failed by officials who put their own interests above those of their citizens.

Egypt’s economic crisis has been a long time in the making, and is partly caused by forces beyond the state’s control. Russia’s invasion of Ukraine has hurt Egypt badly, since it is the world’s biggest importer of wheat and its two biggest suppliers have usually been Russia and Ukraine. Higher wheat prices have made it ruinously expensive for the government to provide the ultra-cheap, subsidised bread that Egyptians have come to expect (they may riot if it is unavailable). The war has also walloped tourism which, before the pandemic, generated about 5% of GDP. Costly grain and a lack of sunburnt Russians have put pressure on Egypt’s foreign-exchange reserves and the pound. Foreign investors have dumped Egyptian bonds. Egyptians now struggle to get hold of hard currency.


But the country’s main underlying problem is the stranglehold on the economy exercised by the state, and specifically the army. Official statisticians are strangely reluctant to provide a measure of this. The government has said that the army controls just 1.5-2% of output. The true extent of its influence, both direct and indirect, is far greater. And under the rule of President Abdel-Fattah al-Sisi (previous job: commander-in-chief of the armed forces) it has expanded.

The army’s empire now includes everything from petrol stations to mineral water and olives. It has hooked the fish-farming market and engineered control over carmaking. The security services have bought up big chunks of Egypt’s media. The army built a huge new cement plant, causing a supply glut that crushed private firms. In industry after industry it squeezes out or scares off competitors, deterring private investment. No ordinary company can compete with an outfit that pays no tax or customs fees and which can throw its rivals in jail. For ordinary Egyptians, the army’s crushing of competition means slower growth, higher prices and fewer opportunities.

The imf should bear this in mind, as Egypt comes knocking on its door for the fourth time in six years begging for a bail-out. It is now the fund’s biggest debtor after Argentina. In the past Mr Sisi’s regime has agreed to carry out reforms in exchange for imf cash. Under the terms of a $12bn agreement struck in 2016, it has devalued the currency and trimmed subsidies. But Mr Sisi has conspicuously failed to keep his promises to reduce the state’s economic bootprint.

Under its most recent deal with the IMF, struck in December, the government has vowed once again to withdraw the state and the armed forces from “non-strategic” sectors. But the men in (or recently out of) uniform who dominate it have little incentive to do so. Many have benefited handsomely from rent-seeking. And in any case, in a country with a history of coups, few would dare challenge the army’s privileges.

Donors keep bailing out Egypt because they are terrified it might collapse if they do not. It is the most populous country in the Middle East and a key Western ally. An implosion might send fleets of refugees across the Mediterranean. These fears are not irrational. Yet supporting a regime whose refusal to reform makes Egypt steadily poorer and its people steadily angrier is no recipe for long-term stability. Egypt’s frustrated Gulf allies are becoming less generous. The IMF should now hold the government to its commitments. Egypt must start demilitarising the economy, or expect fewer handouts.

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US economy slowed but still grew at 2.9% rate last quarter



WASHINGTON (AP) — The U.S. economy expanded at a 2.9% annual pace from October through December, ending 2022 with momentum despite the pressure of high interest rates and widespread fears of a looming recession.

Thursday’s estimate from the Commerce Department showed that the nation’s gross domestic product — the broadest gauge of economic output — decelerated last quarter from the 3.2% annual growth rate it had posted from July through September. Most economists think the economy will slow further in the current quarter and slide into at least a mild recession by midyear.

The economy got a boost last quarter from resilient consumer spending and the restocking of supplies by businesses. Federal government spending also helped lift GDP. But with higher mortgage rates undercutting residential real estate, investment in housing plummeted at a 27% annual rate for a second straight quarter.

For all of 2022, GDP expanded 2.1% after growing 5.9% in 2021.


The economy’s expected slowdown in the months ahead is an intended consequence of the Federal Reserve’s aggressive series of rate increases. The Fed’s hikes are meant to reduce growth, cool spending and crush the worst inflation bout in four decades. Last year, the Fed raised its benchmark rate seven times. It is set to do so again next week, though this time by a smaller amount.

The resilience of the U.S. job market has been a major surprise. Last year, employers added 4.5 million jobs, second only to the 6.7 million that were added in 2021 in government records going back to 1940. And last month’s unemployment rate, 3.5%, matched a 53-year low.

“The news couldn’t have been any better,” President Joe Biden said of Thursday’s GDP report. “We’re moving in the right direction. Now, we’ve got to protect those gains.”

Yet the good times for America’s workers aren’t likely to last. As higher rates make borrowing and spending increasingly expensive across the economy, many consumers will spend less and employers will likely hire less.

“Recent data suggest that the pace of expansion could slow sharply in (the current quarter) as the effects of restrictive monetary policy take hold,” Rubeela Farooqi, chief U.S. economist at High Frequency Economics, wrote in a research report. “From the Fed’s perspective, a desired slowdown in the economy will be welcome news.”

Consumer spending, which fuels about 70% of the entire economy, rose at a sturdy 2.1% annual rate from October through December, down slightly from 2.3% in the previous quarter.

More recent numbers, including a 1.1% drop in retail sales last month, indicate that consumers have begun to pull back.

“That suggests higher rates were starting to take a bigger toll and sets the stage for weaker growth in the first quarter of this year,’’ said Andrew Hunter, senior U.S. economist at Capital Economics.

Economists at Bank of America expect growth to slow to a 1.5% annual rate in the January-March quarter and then to contract for the rest of the year — by a 0.5% rate in the second quarter, 2% in the third and 1.5% in the fourth.

The Fed has been responding to an inflation rate that remains stubbornly high even though it has been gradually easing. Year-over-year inflation was raging at a 9.1% rate in June, the highest level in more than 40 years. It has since cooled — to 6.5% in December — but is still far above the Fed’s 2% annual target.

“The U.S. economy isn’t falling off a cliff, but it is losing stamina and risks contracting early this year,” said Sal Guatieri, senior economist at BMO Capital Economics. “That should limit the Fed to just two more small rate increases in coming months.”

One additional threat to the economy this year is rooted in politics: House Republicans could refuse to raise the federal debt limit if the Biden administration rejects their demand for broad spending cuts. A failure to raise the borrowing cap would prevent the federal government from being able to pay all its obligations and could shatter its credit.

Moody’s Analytics estimates that the resulting upheaval could wipe out nearly 6 million American jobs in a recession similar to the devastating one that was triggered by the 2007-2009 financial crisis.

At least the economy is likely beginning the year on firmer footing than it did at the start of 2022. Last year, the economy shrank at an annual pace of 1.6% from January through March and by a further 0.6% from April through June. Those two consecutive quarters of economic contraction raised fears that a recession might have begun.

On corporate earnings calls for the April-June quarter of 2022, nearly half of companies in the S&P 500 had cited a “recession” — the highest such proportion since 2010 — according to the data provider FactSet. Forecasters at Bank of America and Nomura had predicted that a recession would hit by the October-December quarter.

But the economy regained strength over the summer, propelled by resilient consumer spending and higher exports.


AP Writers Christopher Rugaber and Josh Boak contributed to this report.

Paul Wiseman, The Associated Press


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Oil advances on solid U.S. economic report, signs of China demand – BNN Bloomberg



Oil gained on signs of better-than-expected U.S. economic growth and the potential for greater energy demand from China. 

West Texas Intermediate traded near US$81 a barrel, paring some earlier gains. Global benchmark Brent also advanced.

The U.S. economy expanded by more than forecast in the fourth quarter, figures released Thursday showed, easing recession fears and buoying markets. Meanwhile, a gauge of the dollar slipped to the lowest since April, making commodities priced in the currency cheaper for overseas buyers. 


Oil has recovered from a steep drop at the start of the year, largely on hopes that Chinese consumption will pick up after years of lockdowns. The number of virus-related deaths and severe cases at hospitals in China is now 70 per cent lower than peak levels in early January, authorities said late Wednesday. 

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Energy demand is starting to pick up and the momentum will continue this year, Trafigura Chief Economist Saad Rahim said during a webinar. The rebound in Chinese tourism will have a big impact on consumption, he added, noting that the recovery takes place against a “backdrop of structural underinvesment” in supply.

Liquidity is also returning to the futures market, with open interest in global benchmark Brent near the highest since last February. 


  • WTI for March delivery rose 1.3 per cent to US$81.20 a barrel by 10:03 a.m. in New York.
  • Brent for March settlement increased 1.1 per cent to US$87.09 a barrel.

U.S. crude inventories rose for a fifth week to the highest level since June 2021, the Energy Information Administration reported Wednesday. Still, the gain of 533,000 barrels was smaller than some market participants expected. 

Russian oil products will be subject to a European Union ban on seaborne imports and a Group of Seven-led price cap on the fuels in less than two weeks, with concern it may be more disruptive to markets than recent sanctions on Russian crude. Russian shipments of diesel-type fuel from the Baltic port of Primorsk are already on course to slow. 

Meanwhile, French strikes are hampering deliveries of fuels such as diesel and gasoline as labor action hits the refining industry for the second time this month.

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