The Following is my paraphrasing of notes from a recent Economic Outlook session that I attended with CIBC Chief Economist, Benjamin Tal.

Recession, the word that's been on everyone's minds. But is it truly imminent? The following is my

interpretation and frantic note taking as Benjamin Tal spent 45 minutes analyzing the situation for BC

Mortgage Brokers.

A true recession often means job losses, but right now, we have a robust labor market, keeping a

recession at bay. Although negative GDP growth in the next six months could technically qualify as a

recession, high unemployment is missing. Also, demand for goods continues. Why? Well, it turns out

that substantial savings in Canada accumulated through 2020 and 2021, approximately $1.6 billion, have

been neutralizing the Bank of Canada's rate hiking impact.

However, these savings are dwindling, and consumers are recently leaning more on credit cards. It's safe

to anticipate economic constriction in the next six months. With the cushion of savings gone, we might

be heading for a problem. Did the Bank of Canada overstep? The patterns of the past 40 years suggest

that economic recessions often begin with inflation as a lagging indicator.

There's bias within the Bank of Canada and a preference for “creating” a Recession as it allows for

managing an overshoot with rate hikes by simply cutting. This could mean that the economy suffers

more than necessary. One things is becoming very clear, we're close to a turning point; the question is

when the rate cuts will occur? The Bank of Canada is near or at its peak and won't cut rates until mid-

2024, pending confirmation of an inflation decline. The 2% inflation target remains unchanged. We're

close to a technical recession, but currently GDP growth remains.

Housing Supply Issues: A Growing Challenge

As we dig deeper into economic challenges, housing supply issues come to the forefront. With a

population growth of 1.2 million in the last year, there's substantial demand, particularly driven by new

residents.

In 2022, we saw a record-breaking increase in new residents, but housing and infrastructure continued

to lag behind. Foreign student influx is significant but not accurately tracked, leading to further supply

shortages contributing to inflation. The government is focusing on increasing the supply of rental units,

emphasizing purpose-built rentals over owner occupied condos. As the Housing supply issue remains a

top concern, we may see government measures regarding foreign students.

Immigration policies have exacerbated the housing issue, highlighting the need for better coordination

between all levels of government. The construction industry in Canada is in a crisis situation, with

300,000 construction workers set to retire in the next decade. Doubling the labor supply won't solve the

problem; innovative building methods are needed. Government involvement is likely in social housing;

the private sector alone cannot address the crisis. The private sector's role will be enhanced through

incentives.

Speaking on Inflation Numbers and Rates….

Various disinflationary factors are at play, and supply chain disruptions are getting back to normal.

Shelter inflation constitutes one-third of overall inflation and mortgage interest rates increasing by 30%

are greatly contributing to inflation.

Excluding mortgage interest costs, the situation is manageable, differing from the U.S. approach. The

Bank of Canada won't explicitly pause, aiming to keep long-term rates up through hawkish messaging.

What’s Next – Final Thoughts from Ben?

Looking ahead, 2025 and 2026 will be significant years with many mortgage resets (renewals),

so Canada needs rates back in the 3’s for stability.

The future of real estate hinges on innovation and technology, and risk-sharing mechanisms are

necessary.

Mr. Tal emphasized that the current real estate market slowdown is healthy and expected to

continue for the next six months.

A surge in demand is anticipated once the Bank of Canada is done, and the next ten years are

forecasted to be robust.

His closing thoughts……less predictions and more perspective is the key to navigating these uncertain

times.

Note and disclaimer….. Pretty much every single sentence above should start with “According to Ben…..”

I do tend to agree on most points but these are explicitly his comments.