Word recession is on everyone’s lips and few analysts do not see it on their forecast radar. If it is confirmed, it remains to know its extent and duration. What does history teach?
According to data from the CD Howe Institute’s Business Cycles Council, Canada has experienced 12 recessions since 1929 if we exclude 2015. Canada had then officially entered a recession, according to the classic definition, in the second quarter, for the first time. since the financial crisis. GDP contracted for a second consecutive quarter due to the fall in oil prices. Given the regional dimension of this recession, CD Howe does not officially recognize it.
A dozen recessions, therefore, since the Great Depression, whose duration varies between 3 and 9 quarters if we disregard the exceptional period of the 1930s. If we also forget that of 2020, which concentrated ultimately over two months (March-April) under the shock of the pandemic and the suspension of entire sections of the economy. It will have been the shortest but the most severe since 1929, with a plunge in GDP of 13%.
These data show that recessions followed one another at a frantic pace during the 1950s and then became less frequent and brought us to the Great Recession of 2008-2009, the last period of contraction in economic activity worthy of the name. Fueled by the financial crisis, it hit the United States hard. With 8.5 million jobs lost, the United States recorded a job loss rate of 6%, far higher than that measured during the severe recessions of 1981-1982 and 1974-1975, even if the fall in US GDP was similar between these comparison periods, Statistics Canada pointed out at the time.
The contraction in economic activity experienced here was shorter and less severe, both compared to other G7 countries and compared to the two previous recessions. It stretched from autumn 2008 to summer 2009, forcing a decline in GDP of 3.3% as measured by the federal agency, which compared it to that of some 5% in six quarters calculated in 1981-1982 and 3.4% in four quarters in 1990-1992. Still according to the figures put forward at the time, employment had fallen by 5% in 1981-1982, and by 3.2% during the recession of the early 1990s, against 1.8% in 2008-2009, with a little more of 400,000 jobs lost.
Moderate recession
The next, scheduled to begin in the fall, according to most scenarios, to cover the first half of 2023, should cut 1.8% from peak-to-trough GDP, according to the Oxford Economics target. In comparison, during the recessions of the last 50 years, the average contraction was 2.5% and the duration three quarters. The particularly severe monetary tightening by the Bank of Canada, which revolves around a rather rapid rise in the key rate, is having a severe impact on the residential real estate market and on servicing household debt. These households are also having to deal with an erosion of their purchasing power and a fall in their real income under the impetus of inflation still evolving in skid mode. Moreover, the analysis firm is revising its real estate correction scenario, to now foresee an average price drop across Canada of 30% from peak to trough by mid-2023.
Add to the equation the recession also forecast for the United States, the United Kingdom and the euro zone, which can only weigh on Canada’s foreign trade.
Less costly in jobs
In terms of job losses, Oxford Economics puts the figure at 200,000 between the second quarter of 2022 and the third of 2023. It should be noted that the Canadian economy has cut 114,000 jobs since May. This foreseeable recession is part of a still tight labor market context. Statistics Canada said Thursday that employers in Canada were actively seeking to fill 964,000 job vacancies in July, which was a decrease of 56,400 positions compared to June, but an increase of 134,300 compared to the same month in 2021.
The key rate hike is 300 basis points this year, and at least 50 additional points should be added in October. A pause could follow, leaving the central bank to fully measure the effects of its tightening, but inflation should remain high next year, then tend towards the 2% target, thus pushing back the downward movement of the rent of money.
A scenario also presented on Tuesday by Jimmy Jean, vice-president and chief economist of Desjardins Group. Interest rate hikes are coming to an end, but Canadians and Quebecers will have to wait at least another year before they see them come back down and prepare for a “mild” recession by then, reads -on in a text from The Canadian Press.