The Bank of Canada raised its overnight rate by 0.50 per cent earlier this week, but signalled this may be the beginning of the end for rate hikes. What does this, a tight labour market, and high commodity prices have in store for 2023?
J.P. Gervais, chief economist with Farm Credit Canada, spoke this week at the Prairie Cereals Summit, at Banff, Alta., and shared his thoughts on what the markets may offer going forward.
Gervais was one of the analysts a little surprised by the size of the rate increase. “I was expecting a 25-basis point increase in the overnight rate, we got 50. But I feel confident now saying that… we’re at the end of this cycle of higher interest rates,” he says, which is good news for plenty of borrowers, but he also doesn’t expect a rate decrease in 2023. “I think we’re going to have to live in this high rate environment for a while… we’re going to be on this plateau for a while.”
A strong labour market with low unemployment will have an interesting impact on the likelihood, depth, and length of a recession, Gervais adds.
To grow the agriculture industry in Canada, we’re going to have to hire more labour across the entire supply chain, from trucking, to retail, and through, to food processing, he says. “We really have a big challenge when it comes to labour in front of us. We have a shortage [of labour] now, and I don’t think that things will improve much.”
Commodity prices should remain fairly strong through 2023, Gervais says.
“Perhaps one of the downside risks that if there is a global economic slowdown of some magnitude, and it’s debatable what kind of slowdown we should expect, but that if you know the global economic slowdown is significant that we see the demand for commodities weakened, and that could actually bring prices down if there’s less consumption demand and so forth. But overall, the market’s really tight when it can look at the balance of supply and demand on the input side.”
Check out the full conversation between Gervais and RealAgriculture’s Kara Oosterhuis, below: