RBC economists say Canada鈥檚 economy could fall into a recession as early as the first quarter of next year, but they expect unemployment to be 鈥渓ess severe鈥� than previous downturns.

In a new report, the economists say the downturn won鈥檛 hit households and businesses equally.

They say lower-income Canadians will likely be hit the hardest, as purchasing power falls and debt-servicing costs rise.

They say higher prices and interest rates will shave $3,000 off the average household鈥檚 purchasing power.

The manufacturing sector will likely be among the first sectors to pull back, while service sectors like travel and hospitality could prove more resilient.

The report says the jobless rate, which currently sits at 5.2 per cent, will near seven per cent.

Meanwhile, the parliamentary budget officer is projecting the economy will slow considerably in the second half of 2022 and remain weak next year as the Bank of Canada continues to raise interest rates.

In his latest economic and fiscal outlook, budget watchdog Yves Giroux says he expects the Bank of Canada to raise its key interest rate to four per cent by the end of the year before slashing it in late 2023 as inflation slows.

The outlook also estimates the federal deficit will decline to $25.8 billion, or 0.9 per cent of GDP, for the 2022-23 fiscal year.

The deficit was $97 billion, or 3.9 per cent of GDP, during the prior fiscal year.

Assuming no new measures are introduced and existing temporary measures expire as expected, the PBO estimates the deficit will decline further to $3.1 billion, or 0.1 per cent of GDP, by 2027-28.

The PBO is also projecting that by 2027-28, the federal debt-to-GDP ratio will decline from its peak in 2020-21, but still remain above pre-pandemic levels.