1. Economic recession in developed markets
To stem rising inflation and, more importantly, rising inflation expectations, central banks in the United States, Canada and Europe are implementing aggressive interest rate hikes, with more anticipated in the coming months. The higher borrowing costs will dampen consumers’ ability to finance the purchase of new cars, homes, and other consumables. As consumer confidence weakens, it cascades to businesses and eventually leads to a slowdown in real economic activity. EDC Economics’ base-case scenario doesn’t reflect this risk given the strength of consumers and the tight labour market (unemployment rates are very low). The pace and size of the rate hikes could drive the U.S. economy and other advanced economies, like Canada, into recession.