Are We Heading Into a Recession? Here’s What You Need to Know

Nationwide recessions occur from time to time. These simply refer to periods when there is a considerable drop in the economic health of a country, potentially lasting from a couple of months to several years.

Lately, there’s been an ongoing media discussion about a recession speculated to unfold in Canada this year, as predicted by numerous economics experts. This is supported by the inflation we’re currently seeing. Economics expert David Rosenberg, being among those predicting a 2023 Canadian recession, flagged the downturn observed in the “manufacturing and housing sectors [and the hike in] interest rates” as forces contributing to this impending event. 

But how serious would the recession be? The Bank of Canada (BoC) recently predicted that it would be “mild” with “near-zero economic growth” expected to carry through to the fall. The BoC also anticipates approximately a 2% uptick in the unemployment rate, potentially reducing how fast wages are rising due to inflation.

These outcomes might not sound that bad, but they can lead to a chain reaction of impacts on the public’s economic activities: due to limited incomes, people may fail to keep up with the rising prices, forced to be more selective about what they spend on (especially when unable to afford even the necessities). 

This would mean reductions in market demand and revenue for businesses, which may resort to harsh measures to stay afloat: workers may have their hours reduced, if not lose their jobs completely, causing them to spend even less—basically forming a vicious cycle.

So, what causes recessions?

These may arise from a multitude of unpredictable yet significant circumstances including:

• events adverse to human health or survival such as pandemics and natural disasters
• changes in the stock market where, for instance, investors optimistic about the market are motivated to invest more, which elevates prices
• developments in technology (especially AI) that replaces human workers, which may worsen unemployment

All these events come with varying levels of risk, and it’s not like they can be prevented: what’s unpredictable is generally also unavoidable, happening anytime, anywhere. But this does not mean we cannot do anything to self-protect. 

How to be ready in the event of a recession

Being prepared for life’s surprises can dramatically boost your ability to recover from crises such as losing a job. That’s why it’s essential to remain vigilant and calm at this time—and why it’s wise to have a backup plan. Here are three approaches you can look into to brace for the worst:

1. Start budgeting

Strengthen your financial foundation by directing money to an emergency savings account. Aim to cover at least three to six months’ worth of living expenses. 

2. Manage money better

This is a good rule of thumb to survive a recession. If you have debt, prioritize paying down the one with the highest interest rate. That’s because the longer you take to pay off the balance, the more interest you will accrue. By consistently making payments to reduce your debt, you will feel more secure during uncertain times, and you can also allocate the leftover money to your emergency fund.

3. Earn extra

Grow your income by devoting your skills and energy to making money outside of your nine-to-five job. Whether it is starting a small business (such as baking homemade brownies) or taking on a part-time job, you get to supplement your primary source of income with every extra amount you earn, big or small.

Use these strategies to feel more confident about your ability to navigate financial challenges and uncertainty. Ultimately, by staying prepared and informed about the economy, you can plan and make strategic decisions before a crisis happens—rather than being forced to make hasty ones after it’s struck. 

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