Canada heading into 'mild recession' as tight monetary policy squeezes growth: Report

New research says Canada is heading into a mild recession as elevated borrowing costs, a downturn in the U.S. and persistent inflation dial up the country's economic uncertainty.

Deloitte Canada's latest economic outlook, released ahead of the federal budget on Tuesday (March 28), says tight monetary policy is set to squeeze economic growth this year.

But the research suggests the recession won't be as deep as previously forecasted thanks to the resiliency of the labour market, which is keeping incomes strong.

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The report is forecasting real gross domestic product to fall by 0.5% this year before rebounding with two per cent growth in 2024, while inflation is expected to cool rapidly throughout the rest of this year.

Deloitte says the federal budget, set to be tabled in Ottawa Tuesday afternoon, will likely include affordability measures to help lower-income Canadians, health care support for provinces and incentives to reduce carbon emissions.

The report says these priorities should not have a notable impact on inflation – provided the spending increases are not dramatic.