Many Canadians are starting to feel a pinch in their pocketbook 鈥 from groceries to gas, streaming services, cellphone bills, and mortgage and loan payments.
And while experts are bracing for us to reach recession territory, we aren’t in one yet.
Here’s what you need to know about a recession:
How a recession is defined
Most economists will look at Canada’s gross domestic product (GDP) 鈥 the total market value of all goods and services produces and rendered in the country over a specified period of time 鈥 to determine if we are in a recession.
If the country has two fiscal quarters where the GDP shrinks, then forecasters declare we are in a recession.
鈥淭he Bank (of Canada) does not have an official definition of 鈥榬ecession,鈥 but it’s generally defined as two consecutive quarters of negative economic growth, as measured by real gross domestic product,鈥 a Bank of Canada spokesperson told Metroland Media.
It is something the Bank of Canada’s Governor Tiff Macklem is watching.
鈥淚ncoming data are increasingly pointing to a considerable slowing in business investment and household spending,鈥 Macklem said in his April monetary policy speech. 鈥淎fter expanding 5.6 per cent in the fourth quarter of 2024, final domestic demand is expected to be roughly flat in the first quarter of 2025.鈥
With the United States’ tariffs and Canadian exports expected to decline, second-quarter growth is expected to be much weaker, Macklem said.
There are, however, other warning signs that can help measure an upcoming recession.
Other recession signs
According to TD Bank, one sign of a potential recession is a decline in consumer confidence.
鈥淚n a volatile economy, consumer confidence typically becomes shaky,鈥 TD Bank . 鈥淭his may be the result of a variety of contributing factors, but the key ones are often: high inflation, rising interest rates, layoffs and a general sense of economic uncertainty.鈥
When consumer confidence declines, spending slows and the economy follows suit.
Another sign is the stock market.
鈥淲henever consumer spending is slowing, corporate profits may also be falling. This can lead to a decline in investor confidence, which can cause stock prices to fall,鈥 TD Bank said. 鈥淎s stock prices soften, investor concern may grow, prompting further stock sell-offs.鈥
The and , along with many other countries’ stock markets,聽have had months of ups and downs 鈥 mostly a result of tariff threats from the U.S.
Job losses can be another sign of an impending recession, TD Bank says.
鈥淟ayoffs are both a consequence and an indicator of economic decline. As companies tighten their belts in response to lower consumer spending and economic volatility, employment is often negatively affected.鈥
As a result of people losing their jobs, they slow their spending as much as possible to make up for their loss of wages.
Causes of recession
According to the , a recession is a temporary period of time when the overall economy declines. And, believe it or not, it is an expected part of the business cycle.
A few things can lead us toward a recession, including unexpected economic events 鈥 like when the COVID-19 pandemic led to a brief recession.
In the 1970s, an oil crisis led to a more prolonged recession, TD Bank said.
Debt repayment issues can also be a cause 鈥 when several corporations or households have high levels of debt, it can spark a recession, particularly if those companies or individuals start defaulting en masse, TD Bank said.
High inflation can also lead to a recession. The Bank of Canada is looking to keep the country’s inflation rate at two per cent so the cost of living stays affordable.
鈥淗igh interest rates can cause a recession if they spike too quickly and make everyday debts like mortgages, business and other types of loans expensive to maintain,鈥 TD Bank said. 鈥淚n the early 1990s, the Bank of Canada hiked interest rates to offset inflation and inadvertently contributed to the recession that followed.鈥
The Bank of Canada’s next interest rate announcement is scheduled for June 4. The rate is currently at 2.75 per cent, which is a figure lenders use to determine the interest on paying back loans like mortgages.
How long does a recession last?
There’s no timeline for how long a recession can last. It could be a few months, which is what was seen during the COVID-19 pandemic, with a recession declared from March to August 2020.
According to an , the COVID-19 recession was 鈥渢he shortest and deepest recession since the Great Depression that began in 1929.鈥
But on average, a recession lasts approximately a year.
According to TD Bank, previous recessions include:
- 1970s oil crisis recession: November 1973 鈥 March 1975
- The Iran and Volcker Recession: January 1980 鈥 July 1980
- Double-Dip Recession: July 1981 鈥 November 1982
- The Gulf War Recession: July 1990 鈥 March 1991
- Early 2000s Recession: March 2001 鈥 November 2001
- The Great Recession: December 2007 鈥 June 2009
What is a depression?
It should be noted there is a big difference between a recession and a depression.
A depression is a rare occurrence, whereas a recession is part of the boom-bust economic cycle.
鈥淭hough there are no hard and fast rules that define what constitutes a depression, it can be characterized as a long period of time with mass unemployment, falling prices, low incomes, and a persistent lack of confidence in the future of the economy,鈥 the Canadian Encyclopedia said. 鈥淭he Great Depression, which lasted from 1929 to 1939, was the worst economic downturn in history.鈥
Protect yourself if a recession happens
There are some tips and tricks to protect yourself from the risk of a recession.
Build a budget for yourself and your family. Spend less on discretionary expenses and put off unnecessary purchases on big ticket items to a future date. Use a monthly budget tracker so you can see your cash flow.
With that little bit of extra cash, start an emergency fund. How much you need to accrue depends on your personal circumstances, but most Canadians should save three to six months-worth of expenses.
If you have an investment portfolio, diversify it so less of your investment is at risk. A lower-risk portfolio may help withstand the impact of a recession on your investments, versus an aggressive one meant to build income.
Don’t panic if the stocks take a downturn. Historically speaking, markets have regained their standing and investors who hold firm may see their portfolios rebound over time.
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