How Could Canada Avoid a Recession?
The possibility of Canada avoiding a recession is uncertain. However, there are a number of factors that could help to prevent one. These include:
Strong consumer spending: Canadian consumer spending has remained resilient in the face of rising inflation. This is a positive sign for the economy, as consumer spending accounts for about 55% of Canadian economic activity. If consumers continue to spend, as they have since the pandemic restrictions were lifted, it will help to offset the negative effects of rising inflation and interest rates.
A strong labour market: The Canadian labour market is very tight, with unemployment at a 40-year low. This is a sign that businesses are still hiring and investing. A strong labour market also supports consumer spending because it helps ensure consumers have enough extra money to spend in the economy. If businesses continue to hire and invest, it will help to create jobs and boost economic growth.
Canadian Employment Over Time
Source(s): Labour Force Survey (3701), table 14-10-0287-01.
At the end of 2019, pre-pandemic, Canada’s population was 37.8 million and employment was 18.9 million (50% employed). In June 2023, Canada’s population is 40.0 million, and employment is 20.2 million (50.5% employed). Canadian employment has recovered from the pandemic and trends are improving.
Government stimulus: The Canadian government has provided significant stimulus and support to the economy during the pandemic. This has helped to support economic growth. These programs have largely expired; however, the government could provide stimulus again to fight a recession, so long as it does not result in resurgent inflation.
Lower Inflation: If inflation is consistently brought below 3%, the Bank of Canada and other lenders will lower interest rates. These interest rate drops will help to spur economic growth.
The ongoing conflict in Ukraine has caused price spikes for oil, gas, and wheat, which in turn impact the cost of heating and groceries. The price of wheat has been rising this Summer and if there is an unusually cold winter in 2023 then heating costs could rise as well.
If the factors continue to support the economy, Canada may be able to avoid a recession. However, it is important to note that the economy is still facing a number of headwinds. Inflation fell to 2.8% in June but it hasn’t stayed consistently in the 2% range for a long enough time frame to provide comfort if is no longer a problem. The war in Ukraine is still disrupting global supply chains. These factors could hinder efforts to avoid a recession.
If a recession will happen, it will likely be in the next 9 months to March 2024. However, there is a chance that the much-feared recession may never appear.
