Is Canada heading into a recession? This is what you need to know
As gas prices and food costs continue to escalate and another interest rate hike is expected next month, many Canadians are wondering if a recession is coming and how to prepare for a possible economic downturn.
Sixty-eight per cent of Canadians believe the country is heading towards a recession, while 17 per cent believe it has already arrived, according to a new survey from Yahoo Canada/Maru Public Opinion released earlier this week.
However, 15 per cent of Canadians believe the concern about a recession happening now or later is exaggerated.
But if a recession were to occur, what does that mean for Canadians and how should they prepare for it?
WHAT IS A RECESSION?
A recession can simply be defined as a sustained decline in economic activity for at least six months. This could result from a decline in consumer spending, which in turn could cause sales to drop, businesses to cut costs and ultimately more layoffs.
People shop and wait in long lines to enter stores along Queen Street West during the COVID-19 pandemic in downtown Toronto on Friday, June 11, 2021. THE CANADIAN PRESS/Nathan Denette
“I think the simple rule of thumb is two straight quarters of economic contraction and production of goods and services,” Derek Burleton, deputy chief economist for TD Bank Group, told CP24.
“So we tend to refer to gross domestic product (GDP) as being that overall measure of activity. If we have two straight quarters of decline that passes the simple litmus test of recession.”
The country’s last recession was in 2020 during the height of the COVID-19 pandemic.
IS THERE A RECESSION COMING?
With inflation at a nearly 40-year high and the Bank of Canada expected to raise its key interest rate next month, these factors could kick start another recession.
Statistics Canada said its consumer price index in May rose 7.7 per cent compared with a year ago, the fastest pace since January 1983.
“It's not an oil price issue or food price issue, it’s widespread inflation across the economy, that tells us and that tells policymakers the economy has just been running too hot for too long. We have an inflation issue rooted in the psychology of Canadians and among businesses, and it's going to have to be dealt with,” BMO Senior Economist Robert Kavcic told CP24.
A commuter pumps gas into their vehicle at a Esso gas station in Toronto on Tuesday, June 15, 2021. THE CANADIAN PRESS/ Tijana Martin
The Bank of Canada has said that Russia's invasion of Ukraine, COVID-19 lockdowns in China and backlogged supply chains are fuelling “uncertainty” and higher prices for energy and food, prompting a need to increase interest rates to control inflation.
The central bank has hiked its key interest rate three times so far this year to bring it to 1.5 per cent.
But many economists, including Burleton and Kavcic, expect the central bank to raise its key rate once again by at least three quarters of a point next month to mirror the U.S. Federal Reserve’s recent interest rate hike.
Burleton said this hike could dampen consumer spending, which in turn could eventually ignite a recession.
“I mean as rates go up, the bigger the chance that economic activity will weaken next year but the Bank of Canada feels from a longer-term perspective if they can bring inflation down to their target that will serve Canadians the best over the medium to longer run. So unfortunately, it's going to come at the cost of some output foregone over the next four to six quarters,” Burleton said.
BMO is not forecasting a recession but Kavcic said if “sticky price pressures” continue and the central bank has to continue raising rates then it will be a “big pill for the economy to swallow.”
“Our view on this is that we're going to see economic growth really stall out through the latter stages of this year and the first half or so of next year.”
TD Bank is also not predicting a recession but said in its quarterly economic forecast that “there is a very thin margin for error if another shock hits economies.”
Burleton noted that Canadians are currently experiencing an unusual recovery after the recession in 2020 and that nothing “is a given at this stage.”
“The economy has shown me real resilience. We saw it with the April retail spending numbers. Our own high-frequency data internally…still shows resilience through May. So the economy is holding up in the first half. I guess the question is, to what extent it softens going forward.”
Burleton added that although risks are rising, he thinks a recession does not seem imminent.
HOW TO PREPARE FOR A RECESSION
In anticipation of a possible recession, 56 per cent of the respondents from Maru Public Opinion’s survey said they have set stricter priorities and reduced their spending in the past month.
Eighty-six per cent said they spent more on food this month compared to last month, while 82 per cent also said they spent more on gas.
A woman wearing a mask is seen grocery shopping in this file photo. (Anna Shvets/Pexels)
Burleton said it’s a smart move to put away additional savings in preparation of a potential recession.
“It's probably not a bad thing to kind of start thinking about ways to protect yourself as a household in the event (of a recession). I think the good news is that based on aggregate data of the Canadian economy, a lot of households are holding on to additional deposits and savings…and we're counting on some of that cushion to help defend against deeper outcomes in the economy going forward.”
Sixty-three per cent of survey respondents said food is the biggest expense that they have cut down on in the past month, followed by entertainment and clothing and footwear.
The Yahoo Canada/Maru Public Opinion survey was conducted between June 17 and 19 among a random selection of 1,515 Canadian adults who are Maru Voice Canada panelists. The survey has an estimated margin of error of +/- 2.5 per cent, 19 times out of 20.
With files from The Canadian Press
CTVNews.ca Top Stories
Quebec nurse had to clean up after husband's death in Montreal hospital
On a night she should have been mourning, a nurse from Quebec's Laurentians region says she was forced to clean up her husband after he died at a hospital in Montreal.
Cuban government apologizes to Montreal-area family after delivering wrong body
Cuba's foreign affairs minister has apologized to a Montreal-area family after they were sent the wrong body following the death of a loved one.
What is changing about Canada's capital gains tax and how does it impact me?
The federal government's proposed change to capital gains taxation is expected to increase taxes on investments and mainly affect wealthy Canadians and businesses. Here's what you need to know about the move.
'Anything to win': Trudeau says as Poilievre defends meeting protesters
Prime Minister Justin Trudeau is accusing Conservative Leader Pierre Poilievre of welcoming 'the support of conspiracy theorists and extremists,' after the Conservative leader was photographed meeting with protesters, which his office has defended.
Northern Ont. lawyer who abandoned clients in child protection cases disbarred
A North Bay, Ont., lawyer who abandoned 15 clients – many of them child protection cases – has lost his licence to practise law.
'One of the single most terrifying things ever': Ontario couple among passengers on sinking tour boat in Dominican Republic
A Toronto couple are speaking out about their 'extremely dangerous' experience on board a sinking tour boat in the Dominican Republic last week.
Boeing's financial woes continue, while families of crash victims urge U.S. to prosecute the company
Boeing said Wednesday that it lost US$355 million on falling revenue in the first quarter, another sign of the crisis gripping the aircraft manufacturer as it faces increasing scrutiny over the safety of its planes and accusations of shoddy work from a growing number of whistleblowers.
Bank of Canada officials split on when to start cutting interest rates
Members of the Bank of Canada's governing council were split on how long the central bank should wait before it starts cutting interest rates when they met earlier this month.
Fair in Ontario, flurries in Labrador: Weather systems make for an erratic spring
It's no secret that spring can be a tumultuous time for Canadian weather, and as an unseasonably mild El Nino winter gives way to summer, there's bound to be a few swings in temperature that seem out of the ordinary. From Ontario to the Atlantic, though, this week is about to feel a little erratic.