Many economists see a slight recession in their crystal ball when they look to 2023.
Posted at 4:30 p.m.
Many Canadians remember going through a recession or two, but 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.
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 gross domestic product growth. Experts point out that a mild recession is the most likely scenario for 2023, although a more typical recession is not out of the question.
No two economic downturns are alike. Here’s what kind of impact this one could have.
Lodging
Normally, central banks cut interest rates during recessions, but that’s unlikely to happen in 2023, said Bank of Montreal 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 its 2.0% target.
So while house prices are likely to continue to fall and the recession will add further downward pressure to the market, the cost of borrowing will not come down, Guatieri warns.
Anyone set to renew their mortgage in the next year or more will experience a noticeable increase in their monthly payments, says David Macdonald, senior economist at the Canadian Center for Policy Alternatives.
“Housing is going to get a lot more expensive for most people. »
Some people might decide not to buy their first home, adds Laurie Campbell, director of client financial wellbeing at Bromwich + Smith.
“It pushes more people into the rental market,” she explains, which, in turn, will put upward pressure on rental prices.
Although rents have skyrocketed in 2022, recessions normally hurt landlords more than renters, Guatieri said, predicting that pressure on rental prices will ease in 2023.
“The environment over the next six to nine months will favor renters, as not only will economic weakness slow the rate of rent increases, but ultimately, by further lowering housing prices, it will allow renters to enter the housing market. »
Work
Employees have been in a good position to negotiate this year, says Macdonald. 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.
But that could change.
In a mild recession, widespread layoffs are unlikely and much of the contraction will hit job vacancies, Guatieri believes. If the economy goes into a more traditional recession, however, layoffs will increase more significantly, he believes.
Either way, workers will lose the bargaining power they recently gained, Macdonald predicts.
“That’s the kind of thing you would see in a much weaker labor market, where the balance of power is shifting towards the employer. »
With inflation high, workers worried about getting raises, whether at their current jobs or in new positions, says Ms.me Campbell.
But as a recession approaches, “people are going to be more concerned about keeping their jobs,” she predicts.
New graduates could feel the effects of a long-term labor market recession, adds Macdonald.
“If you graduate in a recession, you can have some serious long-term effects where you never earn as much in your lifetime as someone who graduated in a very tough job market. strong,” he says.
Expenses
Non-essential items are the first thing to take out of household budgets when the economy is tough, recommends Ms.me Campbell — restaurant meals, movies, daily coffees or expensive vacations.
However, not all families have the option of cutting in the first place, she points out. Some people may have to save money on groceries or make difficult decisions about other necessary expenses like housing.
Small and medium-sized business (SME) owners are facing another tough time after emerging from the pandemic, Guatieri adds, and some may not survive a period of rising costs and cautious consumer spending.
As discretionary spending on things like food and entertainment declines, workers in those sectors could see their hours cut, Macdonald warned. 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.
“People who work in these sectors are more at risk,” he says.