WWho's ready for a recession? Almost no one, of course. And certainly not millions of Canadians…more than half the country– living from paycheck to paycheck. Not those, but most likely many of the same people who collectively have $2.5 trillion in consumer debt, of which $122 billion is owed to credit card companies. Canada has experienced recessions before, but today the outlook looks grim, clouded by problems such as record-high youth unemployment. If a downturn comes, it may not be a passing flurry that we can simply ride out.
It's no surprise that the Bank of Canada is trying to calm fears. In the spring, according to economists surveyed by Bloomberg News, warnedCanada was at the very beginning of a recession; bank admitted US President Donald Trump's trade war may be to blame. Last month, speaking about the economic outlook, bank governor Tiff Macklem said: said, “It's not good. It's growth, but it's slow.” However, this is the same institution that understated concerns about inflation as early as 2021, just ahead of the CPI change got up. September 17 bank. lower the prime interest rate to 2.5 percent, noting that while he did not expect a recession, the economy is weaker. Perhaps he believes what he says. Perhaps this is wishful thinking. Perhaps it's somewhere in between. But the bank is not alone. Consulting firm Deloitte predicts Canada will emerge from 2025 without facing a technical recession. Hope abounds.
This optimism only lasts until you look at the latest data and understand the meaning of the word technical. Statistics Canada reported in August that in the quarter ended June 30, the economy shrank at an unexpectedly high annual rate of 1.6 percent. Recessions are generally defined as consecutive quarters of negative gross domestic product growth, which is taken as a rough indication that economic activity is going into reverse. The last decline in GDP before the recent one occurred in the third quarter of 2023. While we wait for the next one, what should we do about the gap between the technical threshold for a recession and the hardships households face?
In other words, definitions tell only part of the story, which economists like Trevor Tombe say misses lived reality. IN HubFall asserts that due to “widespread job losses and rising unemployment, many Canadians are already feeling the effects of a recession.” Tombe's emphasis on feelings is important because it immediately reflects the fact that, no matter what the textbooks or draft rules say, what matters is how households experience the economy day-to-day and whether they believe they can survive. Lately the experience has been bleak.
Citation research According to Abacus Data, Tombe notes that household anxiety is elevated. People are tense and nervous. Research The Bank of Canada found that prices fell after the pandemic but did not normalize by 2024. Even despite the decline in inflation, the main economic problems remain: housing is too expensive, especially in cities where people are looking for work. Years of inflation have destroyed confidencetrust and purchasing powerwith poorer Canadians hit hardest. There is a mortgage debt low but growing. And now Canada is fighting a global hegemon and its main trading partner, while trying to diversify trade, both domestic and foreign, and promising to build a nation through infrastructure projects.
It's a dilemma that Prime Minister Mark Carney has been circling for months: Households are on the brink of strain, but the real test for the country is how it will rebuild an economy that is still overwhelmingly tied to the United States. Trade diversification is hard and long-term work. It is usually easier to trade across a land border, delivering goods and offering services to a country with which we share (although few want to admit it right now) cultural, economic and industrial affinities and connections, including roads and bridges. The cost of the trade war is immediate; the returns from diversification and large-scale infrastructure projects—if they come at all—are less immediate. Meanwhile we are fighting. We will soon look for those responsible for this fight.
As the economy contracted last quarter, Statistics Canada marked that federal spending on goods and services (which typically covers everything from construction projects and office supplies to IT contracts and professional services) rose 5.1 percent, preventing the downturn from becoming even sharper. This is nothing new or surprising – it's Keynesian 101. But the Carney government has promised:austerityAs the risk of an official recession looms – or the revelation that we are in one – the details of the government's magical cut-and-invest budget will matter a lot.
The risk of inflation remains a consideration, but so does mass unemployment. Fears of stagflation, which arise when prices continue to rise even as economic growth slows, should not be exaggerated, but they should be taken seriously. Stagflation will mean higher costs and weaker wages, fewer jobs and less investment, and more families unable to pay their mortgage or using their credit cards only to buy groceries.
Is Canada moving in this direction? It doesn't seem like it now, but the U.S. faces the prospect of just that. As the old saying goes, when America sneezes, the world catches a cold. And who will get sick first? The one who is closer. Canada having trade relations worth approximately $1 trillion per year with the USA, and to whom we send approximately 75 percent of our exportsmeets all requirements. Call us patient zero or number one.
In today's environment, recession represents both an economic and political risk. Carney never promised he could control Trump. “We can’t control what President Trump does next,” he said. said last March, just days before he won the Liberal leadership contest to become prime minister. He was right. However, he promised that he would be a leader with a plan and the ability to best manage Canada's response to whatever the mercurial president might decide to do or not do on any given day. So while he is not responsible for Trump, the Prime Minister is responsible for Canada and our response to external events. The fact that Carney's government is barely six months old has analytical significance, but the political value of its youth as a tool for deflecting blame may quickly fade.
For now, Canadians are giving Carney's ministry a long leash, perhaps recognizing that change takes time and circumstances are less than ideal. With Parliament back in session, Conservative leader Pierre Poilievre back in the House of Commons and no deal with the US on the horizon despite promises of a deal, the worries, frustrations and struggles Canadians are experiencing may soon find someone to blame, and it won't forever be Trump.
This disappointment matters because Carney governs the country with only a minority. In recent months, it has seemed a safe bet that if an election announcement comes in the next eighteen months to two years, it will come from the government itself, seeking to capitalize on the favorable circumstances to secure a proper majority. The chances of this happening are growing every day—roughly, I expect, in proportion to the deterioration of the economy over time.
For its own sake and, more importantly, the good of Canadian households, the government should focus on short-term support for those struggling due to the economic downturn, ensuring the country does not enter a cycle of layoffs and debt defaults. He should also commit to long-term welfare state building, a project implemented, at least in part, by Justin Trudeau's government with the Canada Child Benefit and flawed but nonetheless welcome dental and pharmaceutical programs. Building infrastructure, as Carney promised, can be a good and beneficial thing.
But if the government insists on massive increases in military spending and tax cuts through public investment to directly support Canadians, it will have only itself to blame when those who gave birth to the Liberals last spring next choose an alternative – and sooner rather than later.
Fast Are we in a recession? first appeared on Walrus.
