An economic recession is characterized by a prolonged period of weak or negative growth in real GDP and a significant increase in unemployment. According to the Canadian government’s 2022 Fall Economic Statement, Canada will likely be heading into a mild recession in early 2023. Expert economists now predict that interest rates will rise to 4% in Canada and 4.5-4.75% in the United States, possibly speeding up the arrival of a recession in Canada, one quarter earlier than the previous projection.
Keep reading to learn more about how the recession will affect Canada.
Factors Influencing the Recession in Canada
Housing markets in Canada have cooled sharply as cracks appear in the country’s economy. Central banks are currently engaged in one of the most aggressive rate hike cycles in history. Moreover, while labor markets remain strong, employment has fallen by 92,000 in the last four months. Because of this, the interest rate hikes by the Bank of Canada will be one of the key factors influencing the economic downturn the country will experience.
Higher inflation will urge the government to increase the rates further and potentially cause a more significant decline in household consumption and a deeper recession. It is projected that high inflation and higher interest rates will raise the cost of borrowing and further decrease the purchasing power of Canadians.
Jobs During the Recession
Government services, teachers, and healthcare workers typically experience less job loss during recessions. This has also been true for jobs in professional, scientific, and technical services, which have grown the most from pre-pandemic levels. However, in the accommodation and food services sectors, where recessions have a greater impact on spending, job losses are typically much lower than in manufacturing. And, after two years of pandemic lockdowns, there is still lingering demand for travel and hospitality services. This will limit a decline in these industries in 2023.
Canada’s Tourism Industry During the Recession
Industries like travel and hospitality could prove to be more resilient during this downturn. Canada’s tourism minister, Randy Boissonnault, said that tourism is one of the industries which can help Canada offset the effects of the recession. Tourism in Nova Scotia, for example, is doing well in terms of hotel occupancies at the rate of 71%, which is much higher than the Canadian average of 65%.
There is an increase in demand for the tourism sector, especially in places like Nova Scotia, with the great outdoors and lots of wide-open spaces where people feel comfortable and safe.
Vancouver, Canada’s densest, ethnically diverse city, also saw high occupancy rates, giving much hope for the tourism industry in the upcoming months.
Canada to Recover Faster
Canada’s strong labor market and lower unemployment rates than other countries suffering from recession will help Canada come out of the recession faster. Despite the pandemic, Canada has saved more jobs than any other country due to its pandemic benefits, such as the Canada Emergency Wage Subsidy. Most economists are anticipating Canada returning to growth in the second half of 2023.
Tough times are ahead for sure, but proper planning and staying updated with the latest policies released by the government will help Canada steer clear of the recession.