eResearch | There is no change in our basic premise that Canada is heading for an Economic Recession, because our key interest rate metrics ALL remain inverted. Our best guess for when an Economic Recession might occur is between November 2020 and April 2021.
10-Year/2-Year Spread Table
The following table shows the interest rates and the accompanying Spreads for selected days since October 1 for our key metric: the 10-Year/2-Year interest rate ratio.
10-Year 2-Year Spread
October 1 1.37% 1.58% -0.21x
October 29 1.62% 1.71% -0.09x
November 1 1.42% 1.52% -0.10x
November 8 1.61% 1.63% -0.02x
November 12 1.58% 1.58% 0.00x
November 13 1.60% 1.59% 0.01x
November 14 1.55% 1.57% -0.02x
November 15 1.47% 1.53% -0.06x
Observations: The Spread narrowed from -0.21x on October 1 to 0.00x and 0.01x on November 12 and 13, respectively. Going positive means that the lengthy Inversion concluded. However, this was only temporary because, for the next two days, it was inverted again, at -0.06x on November 15.
10-Year/2-Year Spread Chart
The following chart shows the Spread in the 10-Year/2-Year interest rate ratio since October 1. There has been a steady narrowing of the Spread and, as shown, it very recently came out of Inversion for two days.
Recession Watch
eResearch put Canada on Recession Watch on August 8 when our key interest rate metric, the 10-year/2-year yield curve ratio, stayed inverted for ten consecutive business days.
Historically, economic recessions have occurred some 15 to 20 months after an interest rate Inversion occurs. This means a possible Economic Recession in Canada could occur between November 2020 and April 2021.
Economic Recession Defined
We define an Economic Recession as being characterized by two consecutive quarters of negative GDP growth. That would mean that, to meet the first recessionary date of November 2020, Q2/2020 and Q3/2020 would have to experience negative GDP growth. To meet the April 2021 date, Q4/2020 and Q1/2021 would need to experience negative GDP growth. Between those dates, the other scenario to define a recession is negative GDP growth in Q3/2020 and Q4/2020.
You can read our comprehensive report by clicking the following link: RB_111519
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