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Here’s how the recession could affect your work, housing and expenses

Looking ahead to 2023, many economists say a mild recession is in the cards.

Although many Canadians can remember living through a recession or two, for millions more this will be the first major downturn of their adulthood. Some are in their 20s and may be considering buying a home or already own a home. Others are new graduates entering competitive job markets.

The word “recession” probably brings to mind the upheaval of 2008-09, when the global financial crisis triggered a seven-month recession in Canada and a protracted recovery, rather than the short-term decline of the early days of the pandemic.

A recession is usually defined by two consecutive quarters of negative GDP growth. Experts say the most likely scenario for 2023 is a mild recession, although a more typical recession is not out of the question.

No two economic downturns are the same. Here’s how this one can affect you.

Housing

Normally, central banks cut interest rates during recessions, but that’s unlikely to happen in 2023, BMO economist Sal Guatieri said. The Bank of Canada has made clear that it will continue to raise rates until it manages to rein in inflation, which remains well above the bank’s two per cent target.

So while home prices will likely continue to fall as the recession further puts pressure on the market, the cost of borrowing will not fall with them, Guatieri said.

Anyone looking to renew their mortgage in the next year or more will see a nasty increase in their monthly payments, said David Macdonald, chief economist at the Canadian Center for Policy Alternatives.

“Housing is going to be a lot more expensive for most people.”

Some people may choose to put off buying the first time, said Laurie Campbell, director of client financial health at Bromwich+Smith.

“That’s pushing more people into the rental market,” she said, putting upward pressure on rental prices.

Although rents have skyrocketed in 2022, recessions tend to hurt homeowners more than renters, Guatieri said, predicting that pressure on rents will ease in 2023.

“The environment for the next six to nine months will be in favor of renters, as economic weakness will not only slow the pace of rent growth, but ultimately, by pushing home prices further down, will allow renters to enter the housing market.”

Work

Employees have been in a good bargaining position this year, Macdonald said. According to Statistics Canada, there were more than a million job vacancies in the second quarter of 2022, up from about 732,000 a year earlier and nearly double the pre-pandemic level.

But that could change.

In a mild recession, large-scale layoffs are unlikely, and much of the decline will be due to job vacancies, Guatieri said. If the economy moves into a more traditional recession, layoffs will increase more significantly, he said.

Either way, workers will lose the bargaining power they recently gained, Macdonald said.

“That’s something you’d see in a labor market that’s much weaker, where the balance of power shifts toward the employer.”

With high inflation, workers have been looking at pay raises, either in their current jobs or through new positions, Campbell said.

But heading into a recession, “people are going to be more concerned about keeping their jobs,” she said.

New graduates could feel the long-term effects of a recessionary job market, Macdonald said.

“If you happen to get into a recession, you can have long-term scars where you never make as much in your lifetime as someone who graduated in a very strong job market,” he said.

Expenses

When economic times turn bad, household budgets are the first things unneeded, Campbell said — restaurant meals, movies, daily coffee or expensive vacations.

However, according to her, not every family has space for cutting. Some people may be forced to skimp on groceries or make tough decisions about other essential expenses, such as housing.

Small business owners face another tough time after recovering from the pandemic, Guatieri said, and some may not survive a period of rising costs and cautious consumer spending.

As discretionary spending on things like food and entertainment declines, workers in those industries may see shorter hours, Macdonald said. As is often the case, precarious and low-income workers may be the first to feel the effects of an economic downturn, in part because of the impact on these industries.

“People who work in these areas are more at risk,” he said.

This report by The Canadian Press was first published on October 14, 2022.


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