How could a recession affect Canadians? What you need to know – National

Many economists say a mild recession is on the cards as they look to 2023.

While many Canadians remember going through a recession or two, for millions more this will be the first major downturn in their adult lives. Some are in their late 20s, perhaps planning to buy a home, or are already homeowners. Others are new graduates entering competitive job markets.

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The word “recession” likely connotes the upheaval of 2008-09, when the global financial crisis triggered a seven-month recession in Canada and a long recovery, rather than the short-lived downturn of the early days of the pandemic.

A recession is usually defined as two successive quarters of negative GDP growth. Experts say a mild recession is the most likely scenario for 2023, although a more typical recession isn’t out of the question.

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Normally, central banks cut interest rates during recessions, but that’s unlikely to happen in 2023, said BMO economist Sal Guatieri. The Bank of Canada has made it clear that it will continue to raise rates until it can get inflation under control, which remains well above the bank’s 2% target.

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So while house prices will likely continue to fall as the recession adds downward pressure on the market, the cost of borrowing will not come down with them, Guatieri said.

Anyone who is about to renew their mortgage in the next year or more will suffer a bad increase in their monthly payments, said David Macdonald, senior economist at the Canadian Center for Policy Alternatives.

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« Housing is going to get a lot more expensive for most people. »

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Some people may decide not to buy for the first time, said Laurie Campbell, director of customer financial wellbeing at Bromwich + Smith.

“It pushes more people into the rental market,” she said, putting upward pressure on rental prices.

Although rents have skyrocketed in 2022, recessions normally hurt landlords more than renters, Guatieri said, predicting pressure on rental prices will ease in 2023.

“The environment over the next six to nine months favors tenants because not only will economic weakness slow the rate of rent increases, but ultimately, by driving house prices further down, it will allow tenants to enter in the housing market.


Employees have been in a good position to negotiate this year, Macdonald said. According to Statistics Canada, there were more than one million job vacancies in the second quarter of 2022, up from around 732,000 the previous year and almost twice as many as before the pandemic.

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But that could change.

In a mild recession, widespread layoffs are unlikely and much of the contraction will be in vacancies, Guatieri said. If the economy goes into a more traditional recession, however, layoffs will increase more significantly, he said.

Either way, workers will lose the bargaining power they recently gained, Macdonald said.

« It’s the kind of thing you would see in a much weaker labor market, where the balance of power is shifting towards the employer. »

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With inflation high, workers worried about getting raises, whether at their current jobs or in new positions, Campbell said.

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But as a recession approaches, « people are going to be more concerned about keeping their jobs, » she said.

New graduates could feel the effects of a long-term labor market slump, Macdonald said.

“If you happen to go into a recession, you can have long-term scarring effects, where you never earn as much in your entire life as someone who graduated in a job market. very strong, » he said.


The essentials are the first thing to be taken out of the household budget when economic times get tough, Campbell said — restaurant meals, movies, daily coffees or expensive vacations.

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However, not all families have the option of cutting in the first place, she said. Some people may have to save money on groceries or make difficult decisions about other necessary expenses like housing.

Small business owners are facing another tough time after emerging from the pandemic, Guatieri said, and some may not survive a period of rising costs and cautious consumer spending.

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As discretionary spending on things like food and entertainment declines, workers in those sectors could see their hours cut, Macdonald said. As is often the case, precarious and low-income workers may be the first to feel the effects of economic contraction, in part because of the effect on these sectors.

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« People who work in these areas are more at risk, » he said.


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