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TD Economics Forecasts an 85% Likelihood of Recession in the Coming Years

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Today, Scott Barlow broke data riddled with the ‘R’ word. You know the one. Recession. 

Barlow, a market strategist for The Globe and Mail, cited data from TD economists which analyzed recessionary risk in Canada over the next 12 months to two years. In particular, yield curves were suggested to be the strongest indicator of recession risk.

“The current level of Canadian yield curves is consistent with a 20-40% chance of a recession over the next 12 months, or 35-60% probability over the next two years, although other measures such as the ISM Manufacturing Index or labour/equity markets suggest a lower probability,” the analysis reads. “The housing indicator is the most alarming of the group, as it signals an 85% likelihood of recession over the next year or two.”

It goes on to say that while 85% overstates the probability of recession, economists have concerns about the unprecedented investor stake in Canada’s housing market, calling it an “alarming environment.” 

“Residential investment makes up a larger share of total activity than any period since 1990,” it reads. “Overall, we see a 40% probability of a recession over the next 12 months, or 50% probability over the next two years.”

On a brighter note, TD’s analysis also revealed that there are fewer recession indicators in Canada and therefore less risk to the Canadian economy. This is especially apparent when Canada is compared to other G2 economies, including the US and Europe, where recession indicators are flashing red.

This is far from the first time that we’ve heard talks of recession in Canada. Economists have been in hot debate about recession risk since June. And then, throughout July, an update from Chief Economist at Canada Mortgage and Housing Corporation (CMHC) Bob Dugan, a study by Senior Economist with the Canadian Centre for Policy Alternatives (CCPA) David Macdonald, and report from RBC have all concluded that Canada will see a recession in the months or years to come, with the divisive aspect being when a recession will hit, rather than if. 

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