“There is no doubt that late last year the economy was far more buoyant than anyone expected,” Douglas Porter, chief economist at the Bank of Montreal, said Friday during a roundtable on the outlook for the economy organized by the Economic Club of Canada upcoming year.

Jobs data released last week surprised by showing the economy added 104,000 jobs in December while defaults on mortgage payments remained at historic lows.

However, Mr Porter recalled that history had shown that a recession was inevitable when interest rates rose as rapidly as they did last year and that resilience could make the fight against inflation more difficult.

“The reality is that if the economy stays too strong, interest rates will go even higher. »

Although there is a risk of resorting to raising interest rates to cool the economy, it is possible that the resilience shown so far will result in the gentle slowdown that policymakers had been hoping for, the minister stressed. François Perrault.

“This is worrying in the sense that it may mean we have higher interest rates,” argued Mr Perrault. Perhaps the downside is that this holy grail of a soft landing is no longer a myth and we could actually achieve it. »

TD Bank chief economist Beata Caranci pointed out that the health of the economy — as well as the fact that many sectors, like manufacturing, are still fairly dependent on hiring trends — meant a recession was likely too far away would result in fewer job losses than usual.

“We have about 100,000 job losses this year, which will not be small or easy for those 100,000 people and their families when it happens. However, this is a third of what would normally happen in a recession. »

The timing of rate hikes

The Royal Bank’s chief economist Craig Wright said the bank is sticking to its recession forecast, which it has forecast since July, as a number of long-term tailwinds including free trade, cheap credit and cheap labor are reversed.

He noted that the impact of rapid rate hikes has yet to materialize due to the time lag needed to hit the economy.

“So there’s still a lot of pain to come. »

However, Wright expects the intentional slowdown brought about by interest rates to have an impact, bringing inflation back to the Bank of Canada’s 1% to 3% target range by the end of the month.

Others aren’t as confident inflation can fall as quickly, with Porter noting that core inflation, which knocks out some volatile prices like energy, appears to be stagnant at around 5% and will be difficult to push back if expectations turn to change.

“That will be the hardest to break. It was relatively easy to bring inflation down from 8% to 6% as gas prices fell, but the next step to 2% will be a bit more difficult in my opinion. »

M^me Caranci also noted that emerging factors such as the reopening of China’s economy could also lift energy prices. His bank forecasts that oil prices will rise to $90 a barrel, which would further complicate the fight against inflation.

Overall, it will be some time before economists know how well the sharp rise in interest rates is working and how it will affect households and the broader economy.

“Monetary policy takes a long time to have an impact,” Mr Perrault said. You increase it a lot and then have to wait and see if it works or not. And that is the challenge we have. »