TORONTO — The Bank of Nova Scotia’s senior vice president and chief economist isn’t fretting over a potential recession because he believes predictions that one will hit Canada are “exaggerated.”
“We don’t think a recession is likely whether that’s in the U.S., whether it’s in Canada …” said Jean Francois Perrault at the bank’s investor day in Santiago, Chile on Wednesday. “We think Canadian fundamentals remain pretty solid.”
Despite some economists predicting a recession is headed towards North America, Perrault estimated there is only a 25 per cent chance Canada will experience one and a 20 per cent chance one will hit the U.S.
“Even at that level, we think they are exaggerated,” he said of recession predictions. “There are no significant macroeconomic imbalances that need to be worked out, which is typically a driver of a recession. Moreover, from a Canadian perspective, there has never been a recession in Canada without there being one in the U.S. first.”
If a downturn is headed Canada’s way, he suggested the country could weather conditions better than its neighbours.
“The U.S. is clearly not running very tight fiscal policy and in Canada, we have a tremendous amount of space on the fiscal policy side to do something if needed,” he said.
While Perrault wasn’t anticipating a recession, he does foresee changes coming to North America’s rate environment.
Interest rates will fall, but not by very much and not enough to enter negative rate territory, he said.
He predicted Canadian rates will fall slightly more in Canada than the U.S.
He anticipated the U.S. will see 25 basis points more of easing by the summer because inflation is still below some objectives and will need a monetary boost.
Canada, he said, will see an easing of 50 basis points by the end of the summer because downward pressures on inflation are slightly stronger than they were six months ago.
“Canadian growth remains solid, but we’ve been going through a weak patch in the fourth quarter,” he said. “Risks in the global outlook remain, whether they’re US based, foreign based, they apply to Canada as much as everybody else, so as a result of that, we do think the Bank Canada’s got a little bit of easing left to do.”