eResearch | All of our key Canadian yield curve ratios are inverted. They have been inverted since July 1, 2019, and these Inversions are now deepening. Thus, there is no change in our basic premise that Canada is heading for an Economic Recession. Our best guess for when an Economic Recession might occur in Canada is between November 2020 and April 2021.
For the United States, the yield curve ratios for our key metrics have been narrowing and, in fact, the 10-Year/3-Month yield curve ratio is inverted once again. Still, although our Recession Barometer reading moved up to 8.0X, there is still no threat of all the key metrics being inverted any time soon and, therefore, little likelihood of an Economic Recession occurring in the United States in the near future.
Chart 1: 10-Year/2-year USA Spread
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.
Chart 2: 10-Year/2-year Canada Spread
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: Recession Barometer – Both – January 31, 2020
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