To assess Canada’s recession risk, according to Scotiabank’s new recession probability model, you need to look at factors such as:
- the slope of the yield curve;
- the probability of a recession in the U.S. as determined by the New York Fed;
- changes in consumer confidence; and
- the short-term interest rate.
The bank’s model will “identify the probability of a recession up to four quarters ahead,” says Scotiabank in a report. So far, its forecast says “the probability of a recession in Canada over the next four quarters is very low by historical standards,” based on the above metrics.
“This September, the Canadian economy reached a milestone—100 months since emerging from the 2008-09 recession,” the report said. “This makes it the third-longest economic expansion since the 1950s.” Also, the bank forecasts reasonably strong growth in 2018.
However, the bank says, one thing to watch is the maturing economic cycle and flattening yield curves. “Given the low growth in potential output projected for the next five years, around 1.6% annually, GDP growth should slow down significantly,” it says, so the economy could become more vulnerable in that time.