Canada’s economy is poised to enter a recession as soon as the third quarter, and it’s going to be a painful one for many people, according to Manulife Investment Management’s global chief economist.

The Bank of Canada’s surprise move to increase the overnight lending rate to 4.75% on Wednesday should erase any doubt that policymakers led by Governor Tiff Macklem are committed to bringing inflation down, Frances Donald said. “But whether or not their aggressive rate-hiking cycle turns out to be a mistake or not won’t be about the evolution of inflation,” she said. “It will be about how much it costs the Canadian public to arrive there, and whether Canadian households and businesses should pay the price for the inflationary hangover of Covid.”

Macklem and the central bank’s governing council cited “surprisingly strong” growth in consumer spending, a tight labor market and a housing rebound for their decision. Canada’s economy grew at a 3.1% annualized rate in the first quarter, much faster than economists had predicted at the start of the year.

Consumer activity in Canada and the US has been given a boost from savings that households accumulated during the pandemic, “which are dwindling,” Donald said. Canadian consumers have higher average levels of debt than US consumers, in large part because of the high cost of housing.

“My team had forecasted a rate hike, not because we thought it was the right thing, but because we were listening to the Bank of Canada,” Donald said on BNN Bloomberg Television. “We didn’t cheer ourselves that we got the call right. We all were sad. And that’s because there are real people at the end of these numbers.”