Montreal research firm says debt, rising rates are a toxic mix
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It hasn’t happened for 68 years but a Montreal research firm is suggesting that Canada could enter recession while the US continues to grow.
BCA Research Inc. global macro strategist Jim Mylonas says that the mix of high levels of household debt and rising interest rates could tip Canada into recession.
“I think we’re just on the precipice of embarking on a serious recession,” Mylonas told Bloomberg.
And he’s pretty certain: “It’s not a matter of if, but when,” he added.
Mylonas says that the strength of the US economy will mean further interest rate rises by the Fed, with the BoC forced to follow. But while many US households have cut their debt burden since the financial crisis, Canadian households are heavily indebted.
“We’re now at the point where the Bank of Canada is going to be flirting with triggering the next recession if it hasn’t already,” Mylonas warned.
Lone voice?
Even if Mylonas is right, he is not putting a fixed time on his prediction being realized; and most economic outlooks for 2019 do not call for recession.
A Bloomberg poll of economists earlier this month put the chance of Canadian recession in the next 12-months at just 20% and traders believe another interest rate rise by May is a 30% chance.
But Mylonas stands by his view.
“If the Bank of Canada is not raising in line with the Fed, the reason it’s not raising is probably rooted in bad news,” such as weak economic growth,” he told Bloomberg. “If that’s the case, then my thesis for Canada will play out sooner than most think.”
