Given the drawn-out effects of the pandemic, geopolitical factors like the Russia-Ukraine war affecting the price of oil, rising inflation and interest rates, economists are predicting a recession in Canada as early as the first quarter of 2023.
According to the Royal Bank of Canada (RBC) – an early predictor of the recession – high interest rates and inflation will set the average Canadian household back by nearly $3,000 in terms of purchasing power.
A recent Leger survey, conducted on behalf of BNN and RATESDOTCA, studied Canadians’ general attitudes toward an oncoming downturn and found that 81% are worried about the possibility of a recession — and more than half are actively preparing for one.
Majority of Canadians worried about a recession next year
According to the survey, 81% Canadians are worried about the possibility of a recession, with 28% very worried.
In a press statement, RBC economists anticipate the unemployment rate to hit 7% during the recession, with more job losses than previously expected. Bank of Canada governor, Tiff Macklem, has said this is a necessary evil in the fight against inflation and cooling an overheated economy.
Predicted unemployment rates might be a cause of concern for respondents, as 84% of those who said they’re worried about the recession are employed, while 79% are not.
Those older than 55 are less likely to be worried about the recession (25%) compared to those in the age group of 18-34 and younger, who state that they are very worried about the recession (28%).
How Canadians are preparing for a 2023 recession
According to the survey results, 56% of respondents are preparing for a recession in some way. In order to do that, 38% are cutting down their expenditures.
Other ways respondents say they’re preparing for a recession include paying down debt (18%), keeping their savings liquid instead of in investments (14%), and asking for a raise or taking on more work (6%).
Given rising interest rates, homeowners are more likely to adopt these methods (61%) versus the 48% who do not currently own a home. As mortgage payments rise, another way to save is to compare mortgage rates from different insurance companies to make sure you are getting the lowest rate possible.
On the other hand, 39% say they are not preparing for a recession, with 22% believing that there is nothing they can do to prepare. Whereas others don’t feel the need to prepare (7%) or haven’t thought about it (10%). Notably, those with an annual income of at least $60,000 are also more likely to prepare (63%) as compared to only 47% of those who earn less than $60,000.
Homeowners more concerned than renters about 2023 recession
Six-in-ten, or 60%, of Canadians own at least one home, while 2% own more than one home. Those aged 35+, those living in suburban or rural areas, and those with a household income of more than $60,000 are more likely to be homeowners.
Renters, on the other hand, tend to skew younger (18-34 years old), live in urban areas, and have a household income of less than $100,000.
Those with kids in the household are also more likely to be homeowners, with 68% of them saying they own a home versus 57% of respondents who don’t have kids. The survey showed that 86% of those with kids in the household are also more likely to be worried about a recession, compared to 80% of those without kids.
Homeowners with one or multiple homes are more likely to be worried (84%) as opposed to those who rent (80%) — and for good reason. With increasing interest rates, many Canadians are starting to reach their trigger rate, where their regular mortgage payment no longer covers the interest owed. In fact, some lenders are starting to see an increase in mortgage defaults and foreclosures as more Canadians struggle to keep up with higher mortgage payments.
“This recession will have a greater impact on Canada than we think,” says Victor Tran, a RATESDOTCA mortgage and real estate expert. “If the unemployment rate rises — coupled with an increase in new sales listings, failed closings for pre-construction units, reduced appetite for mortgage lending, and stricter government regulations — it's inevitable we see an increase in mortgage delinquencies, defaults, and foreclosures.”
Recession recovery: most Canadians optimistic
While there’s a lot for homeowners to be concerned about going into 2023, the good news is that RBC anticipates any recession to be short-lived and moderate.
Although most Canadians are worried about an oncoming recession, 22% are optimistic that the economy will recover in one or two years. Those older than 55 with a household income of more than $60,000 anticipate an even quicker recovery. This may be indicative of greater confidence in their savings that will help tide them over through a recession.
Meanwhile, 35% of respondents anticipate economic recovery within three to five years. And just more than 20% expect the recovery to take longer – five to 10 years — particularly those with a household income of less than $60,000, while 7% don’t expect the economy to recover at all.
An online survey of 1,526 Canadians (older than 18 years) was completed between December 9 and 12, 2022, using Leger’s online panel. No margin of error can be associated with a non-probability sample (i.e., a web panel in this case). For comparative purposes, though, a probability sample of 1,526 respondents would have a margin of error of ±2.5%, 19 times out of 20.
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