Economic policy and central bank and government decisions are generally based on economic forecasts that represent “the best estimates of the future trajectory of economic variables of interest that analysts can make using available data.” Prudent management suggests taking into account the risks associated with forecasts.

We use a vector autoregression (VAR) approach to produce macroeconomic forecasts conditional on four risk scenarios: a high oil price, a U.S. recession, a tight labor market and restrictive monetary policy. Our results show that these scenarios represent important risk factors for the evolution of the Canadian economy. In particular, the scenario of high oil prices is rather positive for the Canadian economy, while an American recession could lead us into a recession. A very tight labor market results in additional price increases, while the very restrictive monetary policy scenario is associated with a slight rise in the unemployment rate and a lower inflation rate.