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IS CANADA IN RECESSION? MOST CANADIANS SAY YES TO AN INTENSE RECESSION

Is Canada in recession?

Statistics Canada recently released data showing that inflation rose to 7.7% year-on-year in May, up from 6.8% in April. This was the highest reading since January 1983 and well above the 7.3% expected by economists. The inflation index rose 1.4% from the previous month, with gasoline prices, hotel prices and car prices being the main reasons for the rise in May.

Many economists believe core measures are a better indicator of underlying price pressures, as it excludes food and energy costs. The recent average of this measurement, according to Statistics Canada, increased to 4.73% which is the highest level in the last 32 years! The worst news, their inflation expectations are not stopping.

In this Brandon’s Blog, I discuss is Canada in recession and look at what effect it might have on Canadians.

Is Canada in recession? What is a recession?

In the most basic terms, a recession is not only when economic growth is curtailed but is a period of economic decline marked by a contraction in economic activity. Most governments define a recession as two straight quarters in which the economy contracts by at least 1.5 percent. Economists define it as negative gross domestic product (GDP) growth. This definition doesn’t take into account consumer sentiment, but that’s an important metric to pay attention to since it affects consumer spending.

Fears of a recession have been rising in recent weeks as central banks around the world try to bring inflation down from the highest in decades by raising interest rates quickly. A new poll finds that nearly 8 in 10 Canadians believe the Canadian economy is in or near a recession. More than half of those Canadians are starting to cut back on spending to cope with the recession.

According to a recent survey of 1,517 Canadians by Yahoo and pollster Maru Public Opinion, a whopping 78 percent of respondents believe Canada is now in a recession or approaching a recession. Of those, 23% believe Canada will enter a recession within the next three months, while as many as 55% believe the Canadian economy is now in a recession.

is canada in recession
is canada in recession

Is Canada in recession right now? What the economists say

Canadian economists were surveyed by Finder on their inflation and economic recession expectations. Most said Canada has recession risk and is heading for a recession. They say we can expect it to happen anytime between 2023 and the first half of 2024. Most thought it would happen in the first six months of 2023, another quarter thought it would take a year to manifest. Economists have pointed to the pandemic, inflation and interest rate hikes as the reasons for the recession in Canada (isn’t the hot money only flowing into the housing market the reason for the recession?).

Finder explains how economists try to time recessions. Canada is headed for a normal summer as pandemic restrictions are lifted, but a new variant of the COVID-19 pandemic could emerge in the fall that could tip us into a Canadian recession by this time next year. What they cannot tell us is whether it will be a mild recession or a deep recession.

Why Is Canada likely to experience a recession?

In a single word – inflation. Inflation is rising and our federal government is doing nothing to quell the inflation expectations. This is causing the Bank of Canada to try to tame inflation by raising interest rates. This increases the risk of a recession. In fact, many economists told Finder they expect “aggressive” rate hikes in the coming year. Most of those polled believe there will be at least four more rate hikes this year.

Fears of a recession have been rising in recent weeks as central banks around the world try to bring inflation down from the highest in decades by raising interest rates quickly. The Bank of Canada is one of the central banks trying to restore soaring inflation to its target range of 1% to 3%. On June 1, the Bank of Canada announced a rate hike of 0.5%.

The timing of the recession is not easy to grasp, and much depends on what happens with Russia’s invading Ukraine. Murshed Chowdhury, an associate professor at the University of New Brunswick, expects the recession to continue into the first half of 2024. How long the supply-side problems will last and the escalation of the Russian-Ukrainian war will play a big role in deciding how things turn out.

The rise in prices causing inflation can be attributed to a number of factors, including poor fiscal management by the federal government. Other factors include record highs in commodity prices such as oil and wheat. Unfortunately, wage growth for most Canadians has not kept pace with inflation. Wages have risen 2.7% over the past two years, compared with inflation of 3.4% over the same period.

is canada in recession
is canada in recession

Is Canada in recession? What will happen to the economy of Canada?

Consumer prices in Canada accelerated to their highest level in 40 years, Bloomberg reported, adding pressure on the Bank of Canada to continue aggressively raising interest rates in the coming weeks.

Markets are almost entirely confident that the Bank of Canada will raise interest rates by 75 basis points next month, which will lift its policy rate to 2.25%. The rate is expected to be as high as 3.50% by the end of the year. The preferential loan interest rate offered by commercial banks is usually more than 2 percentage points higher than the policy interest rate.

Prime Minister Justin Trudeau’s government has also come under pressure from opposition parties and economists to do more to contain inflationary pressures and help households offset the cost of living, though the Trudeau government has been wary of any new measures.

Like other countries, Canadian households have been hit by record gasoline prices and soaring food prices. After a slight pullback in April, gasoline prices surged again in May, rising 12% for the month and 48% from a year earlier. Food prices rose by a smaller 0.8% in May but were up 8.8% from a year earlier.

Given that gasoline prices rose further in June, the 7.7% annual figure may not even be representative of the peak annual price increase. There were more signs that imported inflation was affecting domestic prices, with the cost of services rising 5.2 percent from a year earlier, the fastest pace of growth since 1991.

The cost of living is rising twice as fast as the average Canadian wage, creating significant headwinds for the economy. Unfortunately, the Canadian government and the Bank of Canada are treating this as if inflation is all caused by domestic factors when it is really global. Raising interest rates aggressively, an old tool, cannot solve a globally induced imported inflation spike.

The inflation we are experiencing now is a result of all the shocks to the Canadian economy: COVID-19, monetary policy-induced recession factors when the Bank of Canada kept interest rates at their lowest ever levels during the COVID-19 pandemic, the supply side problems because every major world economy effectively shut down for the better part of 2 years, the war in Ukraine causing shortages and therefore price spikes. None of it is a Made In Canada problem, yet the Bank of Canada and the federal government are treating it as if it was homegrown.

Is Canada in recession? What happens if we experience a recession?

Canadians’ purchasing behaviour is already beginning to change. A poll conducted by Nanos Research for Bloomberg News indicates:

  • 52% of Canadians surveyed say they have adjusted their spending habits, set stricter priorities and started consciously spending less in the past month.
  • The majority of Canadians expressed concern about the state of the economy, with 62 percent of Canadians believing that the Canadian economy was on the wrong track.
  • Rising prices have led 32 percent of Canadians to believe they are in a worse financial position than they were the previous month. Only 8 percent of Canadians said their situation had improved.
  • Regionally, the poll showed that residents of Atlantic Canada and Western Canada are particularly concerned about the economy.
  • In the Atlantic region, 75% of respondents believe the Canadian economy is heading in the wrong direction; in Manitoba and Saskatchewan, 77%; in Alberta, 66% of people hold this view.
  • 41 percent of Canadians said they were in a worse financial position today than they were last year. This is the second-highest reading since 2008.

This consumer sentiment, runaway inflation and the Bank of Canada and the federal government using old tools to fix a new problem will have negative consequences for Canadian businesses. Consumer spending which previously fueled the Canadian economy, now reduced consumer spending, this will most likely place is Canada in recession.

Lower company sales will lead to job losses and our record low unemployment rate will increase possibly to a new high when the current job market changes for the worst during a recession. Business investment will be reduced and what investment is made, will be more in systems and technology than people. There will be a resultant drop in GDP. Certain asset categories will drop dramatically in price as capital flees places like the Canadian stock market for investments seen to be safer.

is canada in recession
is canada in recession

Is Canada in recession? How to protect yourself from a recession

Our spending and investing habits directly impact the economy. This year so far, it’s been a rough ride. However, the majority of how a recession affects us is within each of our own control. The rest of it, the minority is because of forces beyond our control.

The economy will vary from year to year. Our spending, saving and investing habits directly impact the economy. It is important for all of us to make smart financial decisions now so we can weather the storm when the economy dips. Is Canada in recession? Based on the above, not right now, but, it could be soon. Here are my tips on how to protect yourself from a recession.

It’s important to have an emergency fund

When a recession hits, you can get fired and the value of your investments can plummet. One of the best ways to protect yourself from financial distress or additional debt is to increase your emergency savings.

That way, even if there are unexpected expenses, or your income is affected, you’ll have a cushion to protect yourself and your family. I always recommend having an emergency fund that allows you to survive for a 6-month period.

Boost your employment prospects

When a recession hits, job security can be at risk. To safeguard your income, you should consider finding a side hustle in addition to your regular job. This can serve two key purposes—helping you grow your emergency fund and providing you with extra income.

You should focus on developing job skills that will help improve your chances of not being laid off. Time management, communication, and attention to detail are all important skills to focus on.

Budgeting

Look at your family household expenses. Cut back on anything that is not necessary spending. If necessary, use cash to pay for purchases and not a credit card. We tend to spend less when we have to count it out in cash rather than tapping or swiping a card.

That way your money will go much further. Remember, during a recession, cash is king!

Pay down debt

Do everything you can to pay down your debt before a recession hits. The more debt you have, the more of your money goes to interest payments. If you have variable rate loan debt, as the Bank of Canada continues to crank up interest rates, the cost of that debt increases.

If you have fixed-rate debt and it comes up for renewal time, say like your house mortgage, you will be forced to renew at a higher interest rate. So, by paying down debt, you are insulating yourself as best as possible against the negative effects of the recession on your outstanding debt.

The economy may or may not slip into a recession but based on what the economists believe, more likely than not, eventually, it will. Recessions can last for a long time, or they can end quickly. However, the more prepared you are, the lower your chances of suffering a prolonged financial shock in the aftermath.

You may also want to read 2 other Brandon’s Blogs:

Is Canada in recession? What if your debt is too much for you?

I hope you found this is Canada in recession Brandon’s Blog interesting. Among the many problems that can arise from having too much debt, you may also find yourself in a situation where bankruptcy seems like a realistic option.

If you are dealing with substantial debt challenges and are concerned that bankruptcy may be your only option, call me. I can provide you with debt help.

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is canada in recession
is canada in recession
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Brandon Blog Post

REDWATER ENERGY CORP. – SUPREME COURT TO DECIDE WHO PAYS CLEANUP COSTS

UPDATE: ON JANUARY 31, 2019 THE SUPREME COURT OF CANADA RELEASED ITS DECISION ON THE APPEAL BY THE PROVINCE OF ALBERTA ET AL. READ OUR UPDATE, REDWATER ENERGY SUPREME COURT DECIDES, PUBLISHED 9 PM ON MONDAY, FEBRUARY 4, 2019.

Redwater Energy Corp.: Introduction

By now you have no doubt read articles on the decision in the Redwater Energy Corp. (“Redwater”) case. In a 2-1 decision, the Alberta Court of Appeal has upheld the Redwater ruling of the lower Court. The lower Court decision protects, in a bankruptcy, a lender’s secured priority over provincial ecological clean-up requirements.

Redwater Energy Corp.: The Court decision heading to the Supreme Court of Canada

In their majority decision, the Alberta Court of Appeal judges discovered “no mistakes” in the Alberta Court of Queen’s Bench judgment. The May 2016 lower Court ruling was that provincial laws which are in conflict with the federal bankruptcy legislation, do not supersede the federal Bankruptcy and Insolvency Act (Canada).

The situation centred on a little energy firm which entered into receivership in 2015. It owed $5 million to ATB Financial. At the time of its bankruptcy, Redwater had some producing oil and gas wells. However, it had a lot more properties that were not so productive. The Trustee wanted to sell off the productive wells, and leave the others behind for The Orphan Well Association to deal with.

An appeal from the Alberta Court of Appeal decision will be heard by the Supreme Court of Canada. The Supreme Court of Canada will hear the case on February 15, 2018.

Redwater Energy Corp.: Federal bankruptcy trumps provincial law

The Court addressed a fundamental public policy dilemma. Which has top priority: federal government bankruptcy legislation, or provincial energy law. The Alberta Court of Appeal sided with the lower Court in deciding that the federal Bankruptcy and Insolvency Act (R.S.C., 1985, c. B-3) is the law that must be looked at. The Province has no ability to force the secured creditor in a bankruptcy scenario to follow the provincial rules. The lender does not need to incur the costs of remediating the unproductive wells when realizing upon the productive assets.

Redwater Energy Corp.: The Alberta Energy Regulator reaction

In response, on December 6, 2017, Alberta introduced more stringent regulations for giving business permits to oil and gas firms. The constraints intend to hold firms responsible for deserting wells as well as disregarding ecological clean-up. Permits that are currently issued can possibly be withdrawn.

It likewise enables the Alberta Energy Regulator (AER) to do continuous reviews of licensees to aid in taking care of the threat and costs of abandoned unproductive energy assets.

The Orphan Well Association‘s supply currently consists of greater than 1,800 wells needing improvement in Alberta, claimed organization chair Brad Herald. He is also vice-president of the Canadian Association of Petroleum Producers.

What the AER is going to be taking a look at is earlier history of the corporate operator, and its Directors. So if an operator has:

  • a history of previous issues; or
  • has solvency issues

the regulator is going to want to take a closer look. Presumably this will also apply to the Directors of the applicant. The limitations intend to hold firms answerable for deserting wells as well as overlooking ecological clean-up.

Redwater Energy Corp.: Current status

So currently, trustees can simply ensure that unproductive wells that need cleanup are just capped, leaving the Alberta taxpayer to pay for the cleanup bill. Previously, an oil and gas well permit called for a tiny deposit, an address and insurance coverage. The AER’s position is environmental cleanup costs must be paid by the cash from the sale of the producing wells.

Mr. Herald stated there have actually been various other situations since the Redwater decision where a receiver wishes to disclaim a financially troubled owner’s responsibilities.

The AER and the Orphan Well Association are hoping that the dissenting point of view could boost their chances of success at the Supreme Court of Canada. How will corporate bankruptcies affect the oil and gas markets after more than 2 years of reduced pricing?

Redwater Energy Corp.: How to restructure before your company goes bankrupt

Is your company experiencing cash flow problems? Does your business not have enough funds to meet all of its obligations? Do you know that your company has exposure to environmental cleanup costs and just like Redwater Energy, you know it cannot afford the costs from doing phase i environmental site assessments?

If so, then you need the help of a professional trustee immediately. Call Ira Smith Trustee & Receiver Inc. If we consult with you early, we could develop a restructuring and turnaround strategy. By doing this your business will once again thrive.

Our approach for every person is to develop an outcome where Starting Over, Starting Now takes place. You’re just one telephone call away from taking the important actions to return to leading a healthy, balanced, and stress free life.

redwater energy corp
redwater energy corp
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