David Rosenberg discusses why Canada may already be in a recession and the need for rate cuts
Economist David Rosenberg, founder, and president of Rosenberg Research, spoke with Financial Post’s Larysa Harapyn about the current state of the Canadian economy and the potential for the Bank of Canada to cut interest rates in June.
Rosenberg believes that recent inflation data supports a rate cut mid-year. He states, “I think the bank should be cutting rates at the next meeting in June. If they don't, I think certainly providing some hard forward guidance for a move at the following meeting would be in store.”
He notes that inflation is not proving to be sticky and underlying trends have already moved to target. Rosenberg explains, “The inflation rate is coming down in a discernible fashion.”
If the Bank of Canada stays tight for too long, Rosenberg warns of greater actions required later. He mentions that earlier in the year, expectations included four to six rate cuts. He remarks, “The longer they wait, the more they’ll have to do.”
He also highlights that real per capita GDP is in a contraction mode and emphasizes that Canada’s inflation is at a different stage than the US. He asserts, “You can't wrap a 5 percent policy rate around the economy moving into excess supply.”
Rosenberg suggests that Canada may have already entered a recession. He explains that Canada’s aggressive immigration policy, resulting in over 3 percent population growth, can disguise economic conditions.
He states, “When you have three quarters in a row of negative real growth on a per capita basis, I say that fits the bill for recession.” He also highlights the unemployment rate as an indicator, noting its rise from 5.1 percent to 6.1 percent over a year as an 80 percent recession signal.
Rosenberg shares his bullish outlook on interest rates, expecting them to decrease and improve the yield curve over the next 6 to 18 months. He prefers the US Treasury market over the Canadian market for better currency and higher yields.
He advises clients to invest in utilities, REITs, and telecoms, which perform well with falling interest rates. He also suggests considering financials and banks once the yield curve pivots to a positive slope.
Rosenberg concludes that interest-sensitive sectors will benefit from the expected changes in the interest rate landscape, emphasizing the importance of strategic portfolio positioning in the current economic climate.
