Is Canada heading into recession? Here is what you need to know.

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As gas prices and food costs continue to rise, and interest rates are expected to rise again next month, many Canadians are wondering if a recession is looming and how to prepare for a potential economic downturn.

According to a new poll released this week by Yahoo Canada/Maru Public Opinion, 68 percent of Canadians believe the country is headed for a recession, while 17 percent believe it’s already here.

However, 15 percent of Canadians believe that fears of a recession sooner or later are exaggerated.

But if a recession comes, what does that mean for Canadians and how should they prepare for it?

What is a recession?

A recession can be defined simply as a continuous decline in economic activity for at least six months. This can lead to a drop in consumer spending, which in turn can lead to falling sales, cutting costs for businesses, and ultimately more layoffs.

“I think the simple rule of thumb is two consecutive quarters of economic contraction and production of goods and services,” Derek Burleton, deputy chief economist at TD Bank Group, told CP24.

“That is why we refer to gross domestic product (GDP) as the overall measure of activity. If we have two consecutive quarters of declines, that passes the simple litmus test of the recession.”

The country’s last recession was in 2020, during the height of the COVID-19 pandemic.

Is the recession coming?

With inflation hitting near 40-year highs and the Bank of Canada expecting to raise interest rates next month, these factors could trigger another recession.

According to Statistics Canada, the consumer price index rose 7.7 percent year-on-year in May, the fastest pace since January 1983.

“It’s not about the price of oil or food, it’s about economy-wide inflation telling us and policymakers that the economy has been overheating for too long. We have the psychology of Canadians and there is a corporate inflation issue that needs to be addressed,” BMO economist Robert Cavik told CP24.

The Bank of Canada said Russia’s invasion of Ukraine, the COVID-19 lockdown in China and lagging supply chains are fueling “uncertainty” and higher energy and food prices, which should lower interest rates to control inflation. growth is required.

The central bank has raised its key interest rate three times this year to 1.5 percent.

However, many economists, including Burleton and Cavik, expect the central bank to hike interest rates again by at least three-quarters next month to reflect recent Federal Reserve rate hikes.

Burleton said the hike could reduce consumer spending, which could eventually trigger a recession.

“I mean, if interest rates rise, there will be a slowdown in economic activity next year, but the Bank of Canada thinks from a long-term perspective that if it can bring inflation down to its target, that will serve Canadians best.” . long haul. Unfortunately, it will be at the expense of remaining production over the next four to six quarters,” Burleton said.

The BMO isn’t predicting a recession, but Kavic said it would be “a giant pill for the economy to swallow” if “hard price pressures” continue and central banks have to hike rates further.

“Our view is that economic growth will really stall in the latter stages of this year and the first half of next year.”

TD Bank is also not forecasting a recession, but said in its quarterly economic forecast that “there is little room for error if another setback hits economies.”

Burleton noted that Canadians are currently enjoying an unusual recovery from the 2020 recession and “there is nothing at this stage.”

“The economy has shown me real resilience. We saw this in the retail spending data for April. Our own high frequency data internally…still shows resilience through May. So the economy is on hold in the first half of the year. I think the question is to what extent will it soften in the future.

Burleton said while risks are rising, he doesn’t think a recession is imminent.

How can Canadians prepare for a recession?

In anticipation of a potential slowdown, 56 percent of Maru Public Opinion respondents said they’ve set strict priorities and reduced their spending over the past month.

86 percent said they spent more on groceries this month than they did last month, while 82 percent also said they spent more on gas.

Burleton said it was a smart move to scrap the extra savings in preparation for a possible recession.

“Maybe[in the event of a recession]It’s not a bad thing to think about how to protect yourself as a household. I think the good news is that based on aggregate statistics for the Canadian economy, many families are holding on to extra deposits and savings… and we’re counting on some of that cushion to insure against the deepest fallout of any future economy.”

63 percent of survey respondents said groceries were the top spend they reduced over the past month, followed by entertainment, clothing and shoes.

The Yahoo Canada/Maru Public Opinion Poll was conducted June 17-19 among a random sample of 1,515 Canadian adults who are panelists for Maru Voices Canada. The estimated error rate in the survey is +/- 2.5 percent, which is 19 times out of 20.

With Canadian Press files

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