A technical recession is upon us

Forget ghouls, ghosts, and teenage pranksters; the scariest thing that haunted Halloween this year was the spectre of a recession. 

What happened: New GDP numbers show that Canada’s economy stagnated in August instead of growing 0.1% as expected. If GDP stays flat in September, as is now projected, the country will officially enter… *screams* something called a ‘technical’ recession. 

  • The technical definition of a recession is two straight quarters of negative GDP growth, though different definitions factor in other elements, like the labour market.

Why it’s happening: The Bank of Canada's ten interest rate hikes since March 2022 are taking a hard toll on the economy, driving down consumer spending and creating challenges for businesses — a recession was always possible, as high rates restrict the flow of money.

  • Inflation, the impact of forest fires on some industries, and drought conditions affecting harvests also put a damper on GDP growth, per Stats Canada.

What’s next: Rate hikes haven’t yet taken their full effect. NBF economist Matthieu Arseneau estimates that the economy has felt only 58% of the hikes so far. Plus, as more households renew mortgages at higher rates, economic activity should dip even further. 

  • RBC economist Benjamin Reitzes warned in a note of “more downside risk ahead” for the economy. Desjardins economist Tiago Figueiredo cautioned the same thing.

Bottom line: Until more data drops, we don’t know for sure if Canada’s recession-bound. What we do know is that food bank use is at record highs, nearly half of Canadians are living paycheque to paycheque, and economic sentiment is down, recession or no recession.—QH