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Royal Bank of Canada expects moderate recessions in Canada and the U.S.

Royal Bank of Canada, Canada’s largest bank, reported that it expects moderate recessions in Canada and the United States in 2023.

In 2022, while global inflationary pressures eased as major commodity prices and transportation costs declined from their peak levels, inflationary pressures spread across a wide range of goods and services.

Consumer demand continued to outstrip available supply, and labor shortages drove up wages, adding to potentially longer-lasting price pressures.

While central banks are responding with faster-than-expected interest rate hikes, rising interest rates, high inflation and declining equity values are reducing household confidence and purchasing power.

In Canada, output growth was supported by a recovery in the tourism and hospitality sectors following the Covid-19 pandemic and increased activity in the oil and gas and mining sectors, reflecting higher global commodity prices.

Royal Bank of Canada

The U.S. and Canadian economies are expected to experience moderate recessions in 2023.

In the United States, although inflation rates began to decline as global supply chain disruptions eased and gasoline prices declined from spring highs, price growth remained very high and widespread.

Recessions in the eurozone and the UK have likely already begun, with higher interest rates adding to rising inflation and disruptions from the war in Ukraine.

Bond yields have risen substantially since the second calendar quarter of 2022 as central banks respond to elevated inflation.

In 2022, Royal Bank of Canada reported net income of $15.8 billion, down 2% from last year, reflecting lower results in Capital Markets and Insurance, partially offset by higher profits in Personal and Commercial Banking, Wealth Management and Investor Services and Treasury.

Also 2022 reflects lower provision releases on performing loans.

In 2021, the Canadian economy showed growth. Although the unemployment rate remained above pre-pandemic levels, labour markets improved substantially and household purchasing power continued to be supported by large amounts of savings. The U.S. economy also showed growth and similarly, in the Euro area and the U.K., GDP rose amid the lifting of containment measures across member states.

 

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