After the economic rollercoaster of the last few years, fears of a possible recession have started receding.
A recent survey commissioned by RATESDOTCA and conducted by Leger found that 72% of respondents are worried about the possibility of a recession this year. This is a significant decline from December 2022, when 81% of respondents said they were worried. Slightly fewer people also reported feeling “very worried” about a possible recession.
Moreover, 25% of people reported feeling “Not worried” — a 10 percentage point increase from the 15% last year.
While the majority of respondents still worry about the recession, this softening attitude may reflect an economy slowly bouncing back from more turbulent times, or perhaps more cynicism against the backdrop of constant warnings about a recession. Or who knows - maybe people are just going off vibes now, rather than economic indicators. Not a bad tactic!
After all, even though things are still tough, the worst is behind us.
The worst was pretty bad: 2020, the year of the pandemic, threw the country into what C.D Howe Institute called the “shortest and deepest recession since the Great Depression,” which lasted from March 2020 to August 2021.
Over the course of 2022 and 2023, whether or not the country has been in a recession, entering a recession, in a technical recession, or narrowly avoiding a recession has been hotly debated in the post-pandemic recovery phase.
What’s happened since?
Globally, 2022 saw the beginning of the war in Ukraine and its impact on the oil market. There were also the aftershocks of the pandemic on supply chains, and the unleashing of pent-up demand on goods and services. All of this contributed to inflation ballooning to 8.1%.
To temper that inflation, the Bank of Canada began a series of rate hikes in March 2022, which saw the overnight rate go from a low 0.5% to 5%, which is where it has remained since July 2023.
These rate hikes and associated higher borrowing costs have worked their way through much of the economy. At the same time, minimum wage increases across the country and population increase have started to hit the job market.
All these different strands have led straight to peoples’ financial health, homes, and job security, stoking ongoing fears of recession. For many, the symptoms are already there — Job cuts? Can’t afford stuff? Paying more for housing, while taking on more debt? If it walks like a duck and quacks like a duck, is it a duck?
Related: How inflation affects your finances
Was there a recession in 2023?
Where we stand as an economy has been slightly muddy. The Consumer Price Index, which measures the rate of inflation, was at 6.8% this time last year – nearly five per cent above the Bank of Canada’s two per cent target. Was that a recession? People are now paying rates of upwards of six per cent on their mortgage payments, while employment continues sagging downwards. Are those cues of a recession?
RBC was the first to forecast a 2023 recession as far back as October of the previous year, saying that a combination of rate hikes from the Bank of Canada (BoC) and the U.S. Federal Reserve would “hasten the arrival of a recession in Canada – which we now expect to start in the first quarter of 2023.”
A few months later, the bank’s chief economist, Craig Wright, revisited those forecasts, saying that despite slow improvement in inflation and global manufacturing in March 2023, “the most likely scenario is still that the U.S. and Canadian economies will both enter mild recessions over the middle-quarters of 2023.”
In August, CTV hosted an interview with Moshe Lander, an economics professor at Concordia University, who said that Canada was “likely entering a recession, if we’re not already inside one”.
A recession-free 2023
The Bank of Canada defines a recession as “two consecutive quarters of negative growth measured in quarter-over-quarter terms.”
The primary metric used to qualify growth are Gross Domestic Product (GDP), which is directly tied to employment – in a typical recessionary environment, as GDP declines, companies begin to shrink, and workers get laid off. When workers get laid off, people have less money to spend, which impacts business sales, which leads to more layoffs, which leads to less spending, and more overall suffering, on a national basis.
By purest measures, Canada did not experience negative growth in GDP – while growth has been slow, Statistics Canada has only reported slight fluctuations in Real GDP over the course of the year.
And despite many banks warning of a recession, none actually came out and stated, definitively, “Yes, we are in a recession.” Certainly, the C.D. Howe Institute, which is generally respected as the country’s recession watchdog and Canadian counterpart to the U.S.’s National Bureau of Economic Research, did not announce it.
Of course, that didn’t stop over three quarters of Canadians from worrying about it.
Related: 62% of Canadian homeowners concerned about their mortgage renewal: survey
Younger Canadians more likely to worry about a recession; as well as those who don’t own homes
Last year, the survey found that 81% of overall Canadians reported feeling worried about the possibility of a recession. This year, that number is closer to 72%.
The groups of people more likely to worry about a recession include younger people aged 18 to 34 (81%), employed people (75%), those who make less than $60,000 a year (77%), and those who do not own homes (78%).
These demographics are also more likely to be “Very worried” about the possibility of a recession.
Last year, 15% of survey respondents were “Not worried”. This year, that group has grown significantly, with a quarter of Canadians reporting the same.
Half of those not worried about recession are still preparing for the possibility
It’s important to remember that even though the Canadian economy has proven resilient enough to avoid a recession so far, it doesn’t mean that people have not suffered financial hardships in the past few years. While official employment numbers have looked consistently healthy, wages have not kept pace with inflation.
Meanwhile, prices have gone up on virtually everything, especially grocery store items, mortgage interest payments, and electricity.
So, Canadians are no strangers to belt-tightening. As such, 58% of people are preparing for the possibility of a recession, compared to 56% last year.
In the survey, we identified several ways people might be “preparing for the possibility of a recession.” They include:
- Cutting spending and saving more (35%)
- Paying down debt (16%)
- Keeping savings liquid instead of investing (11%)
- A combination of one or more of the above (11%)
- Boosting their income by asking for a raise or taking on more work (8%).
Naturally, people who were worried about the possibility of a recession were more likely to prepare for it. However, 49% of people who reported not being worried about a recession are also preparing.
Canadians aged 55 and older were least likely to worry or prepare for a recession – perhaps because many of them are already retired, don’t have kids to care for, have paid off their mortgages and have more savings to tap into.
Indeed, 25% of this age cohort responded in the negative, saying that there was nothing they could do to prepare.
Read more: What should seniors know about mortgage renewals?
Will there be a recession in 2024?
Thankfully, by most credible accounts, we likely won’t see a major recession in the coming year (barring another unforeseen global catastrophe).
Headline inflation is now dancing around the BoC upper target range of 3%. For its part, the BoC has forecasted that “a severe recession [is] unlikely in 2024,” while boosting predictions for a soft landing, meaning the rate hikes are working as intended.
However, we’re not out of the woods. Despite job gains in the labour market, those gains can’t keep up with Canada’s ambitious immigration targets, squeezing unemployment. And while new immigrants are leading to more surface spending, these trends may be masking a deeper issue.
“We continue to track a small contraction in total GDP in Q4 that will again suggest a bigger decline on a per-capita basis once controlling for still-rapid population growth,” say Claire Fan and Nathan Janzen, economists at RBC.
Meanwhile, Desjardin’s Marc Desormeaux says, “We expect 2024 to bring only a mild recession by historical standards.”
Based on these blanket predictions alone, it’s starting to look a lot like, well, 2023. But whether the economy slides into a full recession or not, it’s never too late to start preparing.
Methodology
An online survey of 1,530 Canadians aged 18+ was completed between the 8th and 10th of December, 2023, 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 1,530 respondents would have a margin of error of ±2.5%, 19 times out of 20.
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