Recession Canada 2023
Table of Contents :
What Happens?
Recession Coming.
Housing & Recession.
Economic Outlook 2023.
My Perspective.
Disclaimer.
Recession is a widespread decline in economic activity that lasts for at least two consecutive quarters, where businesses cut payroll, consumer spending goes down while unemployment skyrockets.
Experts are hinting a Canadian Recession in 2023 might be knocking on door, so let’s explore some facts about it.
What Happens?
When a recession comes, economy is the first thing that gets affected adversely.
During such a scenario, economic activity faces a decline, while people and businesses face economic challenges and hardships.
Now when businesses cut back on costs due to lower consumer spending, hiring is put on the back burner so unemployment is bound to go up.
Consequently, government steps in with economic stimulus or tax incentives to spur growth, while supporting a common man and businesses.
In a way it is circle, rates are increased when faced with inflation and then economy cools down.
But when economy faces recession then rates are lowered to stimulate economic growth.
Hope you get the idea.
Recession Coming
Post pandemic, both public and private debt levels in Canada has gone up exponentially, which looks unsustainable to me.
I think interest rates have to increase more to bring inflation down to 2% levels, so expect more economic pain in the future.
The goal is to kill demand to tame inflation, which will affect people and businesses adversely while increasing unemployment.
Given the economic indicators and what economists are saying, there is a strong possibility that a recession might be hitting Canada in the next 18 or so months.
But bear in mind, nobody has a crystal ball who can predict economic events as there are many moving parts in any economy.
Housing & Recession
During a recession, there is a broad decline in the economy while consumer spending goes down.
Real estate is very sensitive to changes in interest rates, and has been a significant indicator for predicting recessionary trends for a very long time.
Because of long lead times required in property construction, developers don't want to build that nobody is either willing, or able to afford in the future when rates are going up.
During monetary tightening, GDP growth employment rates and consumer spending all will go lower.
Historically a recession has followed an inverted yield curve, so in my opinion I would not buy Canadian real estate right now.
Economic Outlook 2023
Experts have different opinions on the economic outlook for Canada in 2023, but all are on one page that short term future is more uncertain and challenging.
Pandemic proved that some unexpected events can happen out of blue, that can have have a perfound effect on our economies, which nobody could have in their economic modelling.
When Bank of Canada is trying to reverse loose monetary policy from pandemic times, be assured more pain is coming in the form of increasing cost of money.
I believe we are going to face short term economic challenges in Canada.
People have to face increase in both, unemployment and interest rates at the same time.
My Perspective
Recession brings slowdown in economic activity, which affects both people and businesses alike.
Technically predicting a recession is not an easy job, but some economic indicators can give you a good idea.
I agree with most economic experts that recession in Canada is a strong possibility, which we all hope will be a short and shallow one.
Also I am of the opinion that going into such challenging times, people with higher leverage will encounter disproportionate economic challenges.
Going asset light and cash-rich into a recession could be a smart idea, where you can buy good quality assets at bargain prices.
But if you are too leveraged, the scales could be turned against you as I believe often wealth is build during tough times.
Disclaimer :
As a disclaimer, I’m not a financial advisor please consult one before investing based on your personal financial situation.