As gas prices and food costs continue to rise and another rise in interest rates is expected next month, many Canadians are wondering if a recession is approaching and how to prepare for a possible recession. economic recession.
Sixty-eight per cent of Canadians believe the country is heading for a recession, while 17 per cent believe it has already arrived, according to a new Yahoo Canada / Maru Public Opinion poll published earlier this year. week.
However, 15 per cent of Canadians believe that concern about a recession happening now or later is exaggerated.
But if a recession occurs, what does this mean for Canadians and how should they prepare for it?
WHAT IS A RECESSION?
A recession can be defined simply as a sustained decline in economic activity for at least six months. This could result in a decrease in consumer spending, which in turn could cause sales to fall, companies to cut costs, and ultimately more layoffs.
“I think the general rule is two consecutive quarters of economic contraction and production of goods and services,” Derek Burleton, chief economist at TD Bank Group, told CP24.
“So we tend to refer to gross domestic product (GDP) as an overall measure of activity. If we have two consecutive quarters of decline they pass the simple litmus test of the recession.”
The country’s last recession was in 2020 during the peak of the COVID-19 pandemic.
IS 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 start another recession.
Statistics Canada said its consumer price index in May rose 7.7% from a year ago, the fastest pace since January 1983.
“It’s not a problem with the price of oil or food, it’s widespread inflation throughout the economy, which tells us and tells policymakers that the economy has been heating up for too long. We have a problem of inflation. rooted in the psychology of Canadians and among businesses, and will have to be addressed, ”BMO senior economist Robert Kavcic told CP24.
The Bank of Canada has said that the invasion of Ukraine by Russia, the blockades of COVID-19 in China and backward supply chains are fueling “uncertainty” and higher energy prices and food, which causes the need to raise interest rates to control inflation.
The central bank has raised its interest rate three times so far this year to bring it to 1.5 percent.
But many economists, including Burleton and Kavcic, expect the central bank to raise its interest rate again by at least three-quarters of a point next month to reflect the recent rise in U.S. Federal Reserve interest rates.
Burleton said the rise could slow consumer spending, which in turn could lead to a recession.
“I mean, as rates rise, the chances of economic activity weakening next year are greater, but the Bank of Canada is thinking from a longer-term perspective whether it can reduce inflation in its “goal that will better serve Canadians in the middle and middle. run longer. So unfortunately it will have the cost of some production that was lost over the next four or six quarters,” Burleton said.
BMO does not anticipate a recession, but Kavcic said that if “stuck price pressures” continue and the central bank must continue to raise rates, then it will be a “big pill for the economy.”
“Our view on this is that we will see economic growth really stop during the final stages of this year and the first half or so of next year.”
TD Bank also does not predict a recession, but said in its quarterly economic forecast that “there is a very thin margin of error if another shock affects economies.”
Burleton noted that Canadians are experiencing an unusual recovery after the 2020 recession and that nothing “is a fact at this stage.”
“The economy has shown me real resilience. We saw it with the April retail spending figures. Our own high-frequency data internally … still show resilience until May. So the economy it stays throughout the first half. I guess the question is, to what extent will it soften in the future. “
Burleton added that while the risks increase, he believes a recession does not seem imminent.
HOW CAN CANADIANS PREPARE FOR A RECESSION?
In anticipation of a possible recession, 56 percent of respondents to Maru’s public opinion poll said they have set stricter priorities and reduced their spending over the past month.
Eighty-six percent said they spent more on food this month compared to last month, while 82 percent also said they spent more on gasoline.
Burleton said it is a smart move to save extra savings in preparation for a possible recession.
“It’s probably not a bad thing to start thinking of ways to protect yourself as a home in case (of a recession). I think the good news is that, based on aggregate data from the Canadian economy, many households they cling to additional deposits and savings … and we have a part of this cushion to help defend ourselves from the deeper results of the economy in the future. ”
Sixty-three percent of respondents said food is the biggest expense they have cut in the past month, followed by entertainment and clothing and footwear.
The Yahoo Canada / Maru public opinion poll was conducted June 17-19 among a random selection of 1,515 Canadian adults who are panelists for Maru Voice Canada. The survey has an estimated margin of error of +/- 2.5%, 19 times 20.
With files from The Canadian Press