Should I be concerned about a recession?
Recessions are a normal part of the economic cycle. Here's what can cause a recession and a few ways it can impact you.
Jan. 26, 2023
4-minute read
Whispers of a looming recession have become louder lately, causing many Canadians to wonder how they'll be impacted.
But let's back up a bit: What is a recession, anyway? Should you be concerned? How does it impact you?
Here's a quick explainer to answer your questions.
In short, a recession means the economy is in decline. Telltale signs of a recession include an overall reduction in economic, trade and industrial activity. Companies might start producing fewer goods, for example, and consumers start spending less.
Economic ups and downs are normal. But when there's a drop in Gross Domestic Product (GDP) — the total dollar value of all goods and services that a country produces — for two quarters in a row, it's officially considered a recession.
As with any economic event, the reasons for a particular up or downswing are complicated. Some economists believe the root cause of a recession is a fundamental imbalance of supply and demand.
There are many reasons why supply and demand swings happen: geopolitics, natural disasters and changing interest rates, to name a few. For example, the COVID-19 pandemic and the Russian invasion of Ukraine knocked all sorts of supply and demand cycles off-kilter.
How can a recession impact me?
According to our recent Financial Priorities Poll, 73 percent of Canadians are worried about the possibility of a recession this year. Here are four ways a recession could potentially impact you:
- You may see price increases for goods and services
- Unemployment rates typically rise, as companies produce less and try to cut costs
- For workers who do remain employed, income rates or scheduled hours may stagnate or drop
- The stock market usually experiences volatility, which can affect the performance of investment portfolios
While they can be anxiety-inducing, recessions don't last forever. In fact, some are just a few months long. During a recession, it's particularly important to make a budget.
You can also keep track of your spending habits and budget using our goal planning tool. Remember to contribute to your emergency fund if you can.
According to our Financial Priorities Poll, many Canadians are already on the right track: 59 percent believe their financial situation is secure enough to withstand a recession.
One possible outcome of a recession that can benefit consumers is that interest rates usually fall during these periods, as governments try to encourage economic growth.
Another silver lining is that some news reports suggest Canadian employers are looking to hang onto their staff. Although an economic slowdown is expected, we're coming off a hot labour market. Even if unemployment rises from its current rate, the bar is set at a historically low level.
Ultimately, recessions are a normal part of economic and business cycles. It's also important to note that economic events are difficult to predict with 100 percent certainty. Historically, not every expected recession has materialized.
When there is potential for a recession, it’s a good time to keep a close eye on your finances and review your financial situation with an advisor.
- CIBC 2022 Financial Priorities Poll
- Research on the Impacts of COVID-19 from a Societal Perspective: Conference Board of Canada
- Recession or not, Canadian employers look to hang onto workers: Reuters
Research Poll Disclaimer:
From December 12 to December 13, 2022, an online survey of 1,515 randomly selected Canadian adults was conducted. Participants are panelists for Maru Voice Canada Opens in a new window.. The survey was executed by Maru/Blue Opens in a new window.. For comparison purposes, a probability sample of this size has an estimated margin of error, which measures sampling variability, of plus or minus 2.5 percent, 19 times out of 20. The results have been weighted by education, age, gender and region, and in Quebec, language, to match the population, according to Census data. This is to ensure the sample is representative of the entire adult population of Canada. Discrepancies in or between totals are due to rounding.
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