The state of Canada’s economy and whether a recession is a ‘necessary evil’


Like a convertible rushing down the freeway, what was a red-hot economy is exhibiting indicators of tapping on the breaks.

As pandemic restrictions lifted over the past 12 months, all of the pent-up demand for purchasing, touring and total spending started to spill out — with inflation rising to file ranges.

Now, with each passing day, there is extra speak concerning the want for an financial cool-down, which is why a looming recession may very well be proper across the nook.

Finance Minister Chrystia Freeland is already warning of “troublesome days forward” for the economy, whereas some finance consultants suspect there’s a 70 per cent probability of a recession and it may occur in early 2023.

All that speculation of a recession sparks painful recollections of what many felt within the Nineteen Eighties and once more through the monetary disaster about 15 years in the past. Those had been deep downturns with ripple-effects all through the nation and throughout companies massive and small.

A recession this time round is not presupposed to be almost as unhealthy, extra of a reset or a pause in progress to rein in rampant inflation, provide chain issues, and labour shortages. 

Nobody desires a recession, however consultants say it is perhaps the drugs that is wanted to get again to what individuals usually anticipate once they’re on the lookout for a job, shopping for a dwelling, or planning their family month-to-month price range. 

There are some ways to evaluate the well being of the economy and the place it is headed, so this is a take a look at some of the important thing indicators and what they’re exhibiting.

Economy has stalled

At this level, the nation’s economy is seemingly not rising, however not shrinking both. Instead, it is at an inflection level. A possible calm earlier than the storm clouds roll in.

Unfortunately, the latest knowledge is from again in July, so it is a bit dated. The economy grew barely that month, however continued the pattern of minimal progress after lots of momentum through the first half of the yr.

Many individuals are beginning to tighten up on how a lot they spend. Retail spending is up, however that is seemingly as a result of of inflation. Basically, individuals aren’t shopping for extra, they’re simply having to pay extra for what they buy.

The newest retail gross sales figures are for August, which present a rise. Still, economists say retail gross sales have seemingly peaked and they see indicators that customers are starting to drag again on spending within the face of escalating inflation and borrowing prices.

“I’m trying a lot at retail gross sales,” stated Charles St-Arnaud, chief economist at Alberta Central, which represents the province’s credit score unions.

“If we get into a recession, it should come from the patron aspect,” he stated.

Business neighborhood pessimistic

Take only one take a look at how the stock markets have faired this yr and you may rapidly understand how traders and the enterprise neighborhood are feeling concerning the economy.

Stock markets are responding to all of the financial gloom and traders anticipate there’s extra ache to come back.

The TSX is down greater than 12 per cent to date this yr, whereas the main U.S. stock markets have misplaced much more worth. 

Overall enterprise sentiment has softened, in accordance the a current Bank of Canada survey, with many corporations anticipating slower gross sales progress and a majority say a recession is seemingly within the subsequent 12 months. Manufacturing exercise is falling too.

Amazon founder Jeff Bezos has stated it is time to “batten down the hatches,” whereas Goldman Sachs CEO David Solomon stated there’s “extra volatility on the horizon” and a seemingly recession.

WATCH | Why former Bank of Canada governor Mark Carney thinks a recession is seemingly: 

‘A recession is both likely globally and most probable in Canada,’ says Mark Carney

Former Bank of Canada and Bank of England governor Mark Carney informed a Senate of Canada committee that Canada seemingly will head into a recession subsequent yr however will fare higher than many different nations and bounce again quicker.

Help needed

As a trucking and logistics firm, the Mullen Group headquartered in Okotoks, Alta., is having one of its finest years since its inception in 1949. As the economy goes, so does the corporate’s fortunes. 

While companies have struggled to seek out sufficient staff this yr, many have caught up, together with the Mullen Group, which is now totally staffed, together with sufficient truck drivers. There’s no want to rent extra individuals as the corporate begins to expertise a bit much less demand for its companies, particularly from the retail sector.

“We’re seeing cracks, we’re seeing some slowdown, we’re seeing customers be a little extra cautious proper now with their spend,” stated chief government Murray Mullen.

“Recessions are a time simply to pause and get issues again in stability,” he stated. “Sometimes it is a crucial evil.”

The economy cannot all the time continue to grow, says Mullen Group CEO Murray Mullen, which is why recessions are typically crucial. (Kyle Bakx/CBC)

Canada added 21,000 jobs final month, pushing the jobless charge down to five.2 per cent.

“We’re actually within the tightest labour market now we have seen in many years and on the similar time costs [are] actually excessive. So you actually do not need to have what we name a wage-inflation spiral state of affairs,” stated George Jia, an affiliate professor of economics on the University of Prince Edward Island. 

Unstable housing market

As mortgage charges have climbed this yr, actual property costs have fallen in lots of components of the nation. 

In reality, each gross sales and common costs have tumbled. 

Average promoting costs are down greater than 20 per cent from an all-time excessive in February, and down 6.6 per cent since final yr. The quantity of gross sales are down by greater than 30 per cent in comparison with one yr in the past.

“Canada’s economy has been pushed partially by the housing market increase for awhile now,” stated Jia, who recommends individuals take note of the general well being of the business, past actual property figures.

The housing market increase has helped propel Canada’s economy, which is why UPEI economist George Jia is listening to the housing building business as he gauges the well being of the economy. (George Jia)

After a surge in building in 2021, housing begins are down about 5 per cent within the six largest cities through the first half of this yr.

Like the stock market, the state of the housing market can typically point out the course the economy is headed.

Staying afloat

It appears each month, individuals are getting squeezed much more. As the associated fee of residing has elevated, together with grocery retailer costs and mortgages, some individuals aren’t in a position pay their payments.

The quantity of insolvencies stay fairly low, however they’re rising and there are different indicators of continued issues. 

In current months, there was a sharp rise within the quantity of client proposals — a renegotiation with collectors to repay money owed — which suggests a rise in households scuffling with managing their debt.

It’s no secret many individuals are taking a monetary hit to their pockets primarily as a result of of inflation and rising borrowing prices. Considering the excessive ranges of family debt within the nation, some consultants anticipate the chapter charges to maintain marching up.

Canada’s economy has principally stalled, says Charles St-Arnaud, chief economist at Alberta Central. (Kyle Bakx/CBC)

For St-Arnaud, with Alberta Central, the query is whether the sturdy job market and the huge quantity of financial savings amassed through the pandemic, which he estimates at $320 billion, will present some aid to monetary challenges many are dealing with. 

“We’re already beginning to see households scale back their stage of financial savings to maintain their stage of spending,” he stated.  “If there is a massive improve within the unemployment charge, then extra households will run into extra issues.”

WATCH | Threat of recession looms in Canada: 

Canada faces financial bother in months forward: International Monetary Fund

The chief economist of the International Monetary Fund is warning that Canada faces financial challenges within the months forward as issues loom about a potential recession.


Please enter your comment!
Please enter your name here