As gas prices and food costs continue to escalate and interest rates are expected to rise again next month, many Canadians are wondering if a recession is coming and how to prepare for a possible economic downturn.
Sixty-eight percent of Canadians believe the country is heading for a recession, while 17 percent believe it has already occurred, according to a new survey by Yahoo Canada / Maru Public Opinion, published earlier this week.
However, 15% of Canadians believe that fears of a recession that is happening now or later are exaggerated.
But if there is a recession, what does this mean for Canadians and how should they prepare for it?
WHAT IS A RECESSION?
A recession can simply be defined as a continuous decline in economic activity for at least six months. This can be the result of a drop in consumer spending, which in turn can lead to a drop in sales, lower business costs and ultimately more layoffs.
People shop and wait in long queues to enter Queen Street West stores during the COVID-19 pandemic in downtown Toronto on Friday, June 11, 2021. CANADIAN PRESS / Nathan Dennett
“I think the simple rule is two consecutive quarters of economic contraction and production of goods and services,” Derek Burlton, deputy chief economist at TD Bank Group, told CP24.
“So we tend to call gross domestic product (GDP) the overall measure of activity. If we have two consecutive quarters of decline that passes the simple litmus test for recession. “
The last recession in the country was in 2020 during the height of the COVID-19 pandemic.
IS A RECESS COMING?
With inflation at an almost 40-year high and the Bank of Canada expected to raise its key interest rate next month, these factors could start a new recession.
The Canadian Statistical Office reported that the consumer price index rose 7.7 percent in May from a year ago, the fastest pace since January 1983.
“This is not a problem with the price of oil or food prices, this is widespread inflation in the economy, which tells us and this tells politicians that the economy is just too hot for too long. We have a problem with inflation that is rooted in the psychology of Canadians and in business, and we will have to deal with it, “BMO senior economist Robert Kavcic told CP24.
A traveling gas pump in his car at the Esso gas station in Toronto on Tuesday, June 15, 2021. CANADIAN PRESS / Tiana Martin
The Bank of Canada says Russia’s invasion of Ukraine, the blocking of COVID-19 in China and congested supply chains are fueling “uncertainty” and higher energy and food prices, leading to the need to raise interest rates to control inflation.
The central bank has raised its key interest rate three times so far this year to 1.5%.
But many economists, including Burton and Kavcic, expect the central bank to raise its key interest rate again by at least three-quarters of a point next month to reflect the recent rise in the US Federal Reserve’s interest rate.
Burlton said the increase could cut consumer spending, which in turn could eventually cause a recession.
“I want to say that as interest rates rise, the greater the chance that economic activity will weaken next year, but the Bank of Canada considers from a long-term perspective whether they can bring inflation down to its target, which will best serve Canadians. in the medium term to a longer run. So, unfortunately, this will come with the price of some production missed over the next four to six quarters, “Burlton said.
The BMO does not predict a recession, but Kavcic said that if the “price pressure” continues and the central bank must continue to raise interest rates, it will be “a big pill for the economy to swallow.”
“Our point of view is that we will see that economic growth is really slowing down in the last stages of this year and in the first half of next year.
TD Bank also did not forecast a recession, but said in its quarterly economic forecast that “there is a very small margin of error if another shock hits the economies.”
Burlton noted that Canadians are currently experiencing an unusual recovery from the 2020 recession and that nothing has been “given at this stage.”
“The economy has shown me real resilience. We saw it with retail spending figures in April. Our own high-frequency data internally … still shows resilience until May. So the economy is holding back in the first half. I guess the question is to what extent this is softening in the future. “
Burlton added that while the risks are increasing, he believes a recession does not seem inevitable.
HOW TO PREPARE FOR A RECESSION
In anticipation of a possible recession, 56 percent of respondents to the Maru Public Opinion survey said they had set tighter priorities and reduced spending over the past month.
Eighty-six percent said they spent more on food this month than last month, while 82 percent also said they spent more on gas.
This file shows a woman in a mask shopping. (Anna Shvets / Pexels)
Burlton said it was a smart move to save extra savings in preparation for a potential recession.
“It’s probably not bad to 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 aggregated data on the Canadian economy, many households are holding on to additional deposits and savings … and we are relying on part of that cushion to help protect against deeper economic performance in future ”
Sixty-three percent of respondents to the survey said food was the biggest expense they had reduced in the past month, followed by entertainment and clothing and footwear.
The Yahoo Canada / Maru opinion poll was conducted between June 17 and 19 among a random selection of 1,515 adult Canadians who participated in the Maru Voice Canada panel. The study has an approximate margin of error of +/- 2.5 percent, 19 times 20.
With files from The Canadian Press
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