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Economic and Financial Outlook

Economies Remain Resilient in the Face of Higher Interest Rates

February 16, 2023
  • Most major economies slowed in the last quarter of 2022. That said, China, the eurozone, France and the United Kingdom haven’t seen the kinds of real GDP declines once feared.
  • US real GDP grew an annualized 2.9% in the fourth quarter of 2022, helped in large part by a surge in business inventories.
  • Since we published our last economic outlook for Canada, data have continued to surprise on the upside.
  • In Quebec, most economic indicators have deteriorated significantly. The recession seems to have already begun, with real GDP contracting an annualized 1.4% in the third quarter of 2022.
  • So while our base case continues to assume that the Bank of Canada remains on hold for the foreseeable future, there is a significant risk that central bankers are forced to raise rates further. Given the better start to the year for the economy, we have pushed back the timing of the first rate cut in Canada. In the US, we continue to see the Federal Reserve raising the policy rate into the second quarter of the year, and there is a risk of further tightening if inflation doesn’t cooperate.