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ECONOMIC RECESSION IN CANADA: IS CANADA’S ECONOMY HEADED FOR AN INTENSE RECESSION?

economic recession in canada
economic recession in canada

economic recession in canada

Economic recession in Canada: In Canada, the economy is under pressure

The economy in Canada is under pressure as the country deals with the fallout of the coronavirus pandemic. The pandemic has hit Canada hard. On one hand, certain Canadian businesses have shut down and people losing their jobs. On the other, there are job openings for other Canadian businesses. In August 2022, the unemployment rate in Canada increased from its record low in June and July, to 5.4%. The Canadian government has been working on trying to mitigate the damage and create supportable economic growth, but the economy is still struggling. The economic news is not good.

Coming out of the COVID economy there are many forces around the world causing global inflation. Supply chain shortages and the war in Ukraine are but two such global forces. Canada is experiencing inflationary pressures like every other country. Chief economists have mixed views on whether there will be an economic recession in Canada.

In response to the new global inflationary pressures, the Bank of Canada, like many other central banks, is raising its key interest rate regularly and significantly. The Bank of Canada is using its old domestic inflation policy rate fighting tools to fight these new pressures. It has promised more aggressive interest rate hikes. The federal government supports these rate hikes. Prime Minister Trudeau and his deputy chief, our Finance Minister and Deputy Prime Minister, Chrystia Freeland have said so.

As a result, the pressure on the economy is evident in the housing market. Home sales have dropped sharply, and house prices are also starting to fall. Notwithstanding the Bank of Canada’s key interest policy rate was designed to calm down a frothy real estate market, it is also a worry for the Canadian economy, as the housing market has been one of the bright spots in recent years.

The Bank of Canada’s inflation-fighting key interest rate policy tool has the potential not only to reduce inflation but if not closely managed, could throw us into a Canadian recession. We see financial markets, especially the stock markets, reacting negatively to this possibility.

Craig Wright, Senior Vice President & Chief Economist of Royal Bank of Canada believes Canada is headed for a recession, but that it will be a moderate one. So the ultimate question Canadians are asking is there a potential recession on the horizon or, how likely is an economic recession in Canada?

Economic recession in Canada: Bank of Canada believes that higher rates are essential to controlling inflation expectations

Higher interest rates ultimately force a contraction of the Canadian economy and an overall economic decline. The Bank of Canada really only has this one tool if it is going to act. Inflation is strong and is affecting longer-run business and consumer expectations. If inflation expectations rise, they can become self-fulfilling.

If inflation rates stay high, it can have very troubling economic impacts. Businesses will start charging more for their products. For things we need, we would have to pay more and would probably start asking for higher salaries and wages. If Canadians think inflation will go way past the Bank of Canada’s target, it could cause big problems with greater interest-rate hikes.

Both the US Fed and the Bank of Canada are increasing interest rates in an effort to control inflation. And neither bank is finished yet. The U.S. Fed and the Bank of Canada are expected to raise rates through to the end of 2022. That’s high enough to significantly restrict growth.

economic recession in canada
economic recession in canada

Economic recession in Canada: Although rates will eventually go down, they will not do so until inflation has cooled off

Although oil prices have been settling down and therefore prices at the pumps are falling, food and other consumer goods continue to have steady price increases. Continued increases eventually get to the point where they are unsustainable. Inflation won’t slow down until demand falls. Central banks will not ease interest rates until demand falls off sufficiently to reverse the current inflationary trends. If global economies cool off, it will help temper inflation.

Although labour shortages are preventing some expansion, many markets are still growing. However, disruptions from the pandemic continue to make it difficult for China to expand. Slowing growth abroad may have some negative effects on the US and Canadian economies as well.

The Bank of Canada will have to work very hard to find the right balance of interest rate hikes to cool inflation without causing an economic crisis or a recession.

Are we heading towards an economic recession in Canada and what can you do to help yourself?

I don’t know if the Bank of Canada’s current inflation-fighting efforts will force an economic recession in Canada, but Canadians have good reason to be concerned.

If you’re concerned about a recession in the near future, it’s important to be more mindful of your finances and think carefully about whether you can afford major purchases. What would happen if you were to lose your job or have an unexpected expense arise? It’s best to be prepared by carefully evaluating your savings and emergency fund now.

Your employment situation, savings, as well as spending practices can all contribute to how well you weather an economic downturn. Consequently, it is prudent to be prepared for bumpy rides by having a savings cushion and being mindful of living within your means. Additionally, those who are dissatisfied with their current employment or earnings may currently want to check out other opportunities prior to the Canadian economic situation worsening.

Douglas Porter, the Bank of Montreal chief economist, explains that how much Canadians feel the slowdown in the Canadian economy will depend on their individual circumstances. This includes what sector they’re employed in and whether they’re a borrower or saver.

One of the risks of a recession is the possibility of inflation eroding purchasing power and cementing in lower real wages. This is why it’s important to think carefully about asking for a raise now before a recession hits. Anyone considering a large purchase, like buying a home, must look at affordability.

Not only can you get the necessary financing to make the purchase, but can you afford the monthly payments? If you believe a recession is inevitable, then you should hold off making that real estate purchase because home prices inevitably will fall further in a recession.

economic recession in canada
economic recession in canada

What are 8 things you can do to prepare for an economic recession in Canada?

There are certain things Canadians can do to protect against an oncoming recession. It is not easy. It takes planning, belt-tightening and behaviour modification. Some possible steps include:

  1. Begin creating a household budget as soon as possible. This will help you to keep track of your income and expenses and help you make responsible financial decisions to not spend more than your household earns. Do not forget to use your family net income after accounting for income tax as your top income line.
  2. Now that you have your budget prepared, make sure you’re mindful of your spending and cut back where you can. Your budget needs to not only be break-even but there also needs to be a line for monthly savings.
  3. Credit cards can be useful when used properly. However, if you are using credit cards as a means to provide you with income that you do not earn, and increasing your credit card debt each month, this must stop. Lock your credit cards away, reduce your spending and eliminate your credit card debt.
  4. If you want to save money, you’ll have to cut back on eating out. Try to be mindful of how often you’re doing it, and you may be surprised at how much money you can save.
  5. Cutting back on your entertainment expenses is another way to reduce your spending. That means fewer nights out at the movies or out to eat, and maybe even skipping or cutting back on your various cable and streaming subscription services. It’s not going to be easy, but if you’re serious about saving money, it’s a necessary step.
  6. Take a critical look at your cell phone plan. Maybe there is a good deal on a more economical cell phone plan available. It is tough in Canada to do so because of the concentration of power by having so few Canadian providers, but that does not mean that you should not try.
  7. Do not incur new debt.
  8. Keep saving.

What if the economy in Canada is expected to experience a recession in the near future and you cannot hang on anymore?

We’re getting increasingly more telephone calls from people who state they or their companies have been hit hard by the pandemic, and they don’t see an escape. They applied for and received CERB payments. They really believed they qualified, and now the Canada Revenue Agency is reassessing their eligibility and demanding the money back.

We are getting calls from entrepreneurs. Their companies received CEBA loans but were unable to survive — their businesses had to close their doors even before an economic recession in Canada hit.

People are worried about what to do. These calls are coming daily. They are looking for answers to how they can bail themselves out of COVID-induced financial troubles, especially if there will be an economic recession in Canada.

Are you or your company in need of financial restructuring? Are you or your company insolvent due to a contract you may have entered into? Can you or your business not able to afford to make all your necessary debt payments, including mortgage payments?

The financial restructuring process is complex. The Ira Smith Team understands how to do a complex restructuring. However, more importantly, we understand the needs of the entrepreneur or the person who has too much personal debt. You are worried because you are facing significant financial challenges.

It is not your fault that you are in this situation. You have been only shown the old ways that do not work anymore. The Ira Smith Team uses new modern ways to get you out of your debt troubles while avoiding bankruptcy. We can get you debt relief freedom.

The stress placed upon you is huge. We understand your pain points. We look at your entire situation and devise a strategy that is as unique as you and your problems; financial and emotional. We know that we can help you the way we take the load off of your shoulders and devise a debt settlement plan.

We realize that people and businesses in financial difficulty need practical advice and a workable solution in an easy-to-understand financial plan. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We can tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. If any of this sounds familiar to you and you’re serious about finding a solution, let us know. We will get you back to living a happy life, whether or not there is an economic recession in Canada.

Call us now for a no-cost initial consultation.

economic recession in canada
economic recession in canada
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Brandon Blog Post

CANADA RECESSION: 8 ESSENTIAL SMART STEPS TO KEEP YOUR BUSINESS GOING IN A DOWN ECONOMY

canada recession

Canada recession: Can you operate a business if there is a recession in Canada?

During slow economic growth and economic downturns in the Canadian economy, companies cut costs and especially labour costs. I wrote about Canadians’ fears of the Canada recession two weeks ago. Job losses go hand in hand with tough times. For many people, gaining new meaningful employment is very tough and sometimes impossible. For those people with dim economic prospects in the Canadian labour market, starting a small business in tough economic times is really their only option.

Despite the challenges a weak economy and the current recession fears may pose, starting a small business can be a rewarding experience with the proper amount of planning. In this Brandon’s Blog, I provide my 8 best tips for either changing parts of your business or starting a small business during tough economic times and maybe even a Canada recession.

How must business owners respond to a Canada recession?

Right now, no economist is prepared to forecast the Canada recession risk. Will it be a mild recession, a severe recession or will we even have one at all? The current and forecasted monetary policy of the Bank of Canada with its overnight rate hikes to its benchmark rate has financial markets, Canadian businesses and Canadian households all on edge. It is not just Canada as the heads of the central banks of all advanced economies reacted to the pandemic the same way and are now all acting in concert with rate hikes in an attempt to curb the now persistent inflation.

We are in somewhat of new territory as this period of time is very different than previous recessions and financial crises. We are experiencing economic shocks due to the COVID-19 pandemic and the shutdown and restarting of the Canadian economy. There is not a lot of either business confidence or consumer confidence in the marketplace right now. The consumer price index is increasing due to rising inflationary pressures and the inflation rate in Canada.

Small business owners need to have a well-crafted business plan, especially during an economic downturn. This is because it can be more difficult to get financing from lenders when money is tight. Therefore, starting a small business during a recession can be challenging. If you want to have success in your business, new or established, you need to put some serious effort into cash forecasting and knowing your bottom line. This means understanding how much money you need to bring in, what your operating costs are, and ideally how to make a profit.

canada recession
canada recession

How to financially prepare my business for a Canada recession

Here are some methods that can help ensure your business does well during challenging financial times. Whether you’re just starting or need to make some adjustments to your existing company, these pointers can help you survive as well as also grow.

You can even find success at some level during turbulent economic activity. The reasons are as follows:

  • You may find that there is less competition during this time. This is because most people tend to start businesses when the economy is doing well.
  • You may find certain things are cheaper, the overhead costs of things that you need for your business to run. Think about working from home or renting a location that has been vacant for a while. Think of used furniture and materials, which you can buy at a discount or maybe even from a bankruptcy sale.
  • If you service your customers you gain during this time well, your good relationship will be a good reason why they will be more likely to stay in touch with you when the economy improves. This is especially important if you can offer them a more affordable option than the competition.
  • More mature businesses tend to stifle or prevent innovation during downturns. You can use this time to come up with new ideas that might be missed and give you a better position when you open doors, real or virtual.

The success of your company is based on how well you study the actual domestic demand for your product or service in the marketplace. It is just as important to comprehend what target price you need to reach in order to make sales. Furthermore, you need to understand what sales level you need to hit to both break even and also to be profitable.

Canada recession financing

It’s always an excellent idea to have someone you trust assess your business plan and cash flow forecast before trying to obtain financing. This will help you catch any essential issues you might have missed or inaccurate assumptions you have actually made as it relates to your business and its capital requirements. Some resources you might wish to turn to for help before looking to financial institutions for a loan include:

  • friends who have their own business;
  • someone at the bank where you do business with who you have a good relationship; or
  • your accountant

The Canadian economy could be pushed into a recession by the federal government’s reaction to the COVID-19 pandemic. If you’re considering starting a new business during these challenging times, you need to be very cautious. Your ability to develop a financial backup plan for your business and personal finances if you don’t meet your initial revenue target is more important than your ability to borrow money. It is normal for any new business that you will not be able to draw a salary during the 1st year of your new business.

You should also have a personal cash reserve so you have enough to live on for ideally the first 12 months of a new business. Make sure you budget carefully so you can keep making your most critical payments: rent/mortgage, insurance, utilities, and food. Finally, check your gut and your bank balance to make sure you’re ready to embark on your new adventure.

canada recession
canada recession

Canada recession: Sell ​​shrewdly

Starting a new business at a time of sharp economic downturn and turbulent economic activity requires creativity and resourcefulness. Marketing is critical to staying ahead of the competition. Make sure your business plan really fleshes out the marketing process: What exactly are you trying to sell? Who is your target customer? How will you price your product or service? What is your business promotion plan?

Dividing your original customer base into smaller pieces or niches is another strategy to allow any business to market more strategically. For example, if you are offering professional services for women, are you able to narrow it down to women in a specific age group, occupation type, or geographic location? Or, can you tier your product offering so that there is a relatively low-cost entry point product to allow new customers to try out your business and to allow you to then move them up to higher-priced and more profitable product offerings?

Can you think of ways to expand your customer base? For example, if you have a business shipping recipes and ingredients on a subscription basis for people to cook their own dinners without having to go do the shopping, could you also offer packaged dinners to customers who just want the convenience of heating and eating?

Canada recession: Ongoing competitive analysis

Be informed of your competitors’ movements in terms of marketing and product design. Are they enhancing the product? Devaluing the price? Utilizing original promotional methods? Knowing your competitors’ standings will help you formulate a unique selling proposition and grow your market.

Think about which segments your competitors are not serving, or which leads they are missing, and then fill that gap.

canada recession
canada recession

Canada recession: Start small…with a plan to expand

As you start your business, be mindful of both your expectations and expenses. Try to be conservative in your estimates and plans, then adjust as your business grows. Review your business plan periodically and reconsider what is truly necessary to get started. For example, could you open in a smaller or cheaper location? Or, could you avoid the need for physical space by staying virtual?

When you have found the most cost-effective space for your business, think about your staffing needs. Before hiring permanent staff, you could use independent contractors as temporary or part-time workers.

If you are aware of a similar business that is failing, you may be able to find some great people who are willing to be paid less than in a more active market. Offer fewer employee benefits initially and then increase them as your profits grow. You don’t want to offer all sorts of great benefits at first and then find out you can’t afford them later. Taking away benefits is much worse than not having given them in the first place.

Immediate business growth in a challenging economy is unrealistic. An aggressive approach in a Canada recession or a down economy is unwise. You should be looking for sustained business growth over time.

Canada recession: Leverage technology to your advantage

The right tools are essential for business success. Utilizing modern technology can help you to stay organized, connected with customers and effectively market your company. CRM systems help you track your customers’ interests, so you can focus on products and services that best meet their needs.

The latest technology gives entrepreneurs more options for selling online and through multiple channels. You can save on advertising costs by doing email marketing, blogs, podcasts and of course optimizing your website for SEO instead of opting for more expensive electronic or print ads. And when you need inspiration, you can turn to social media and online publications and groups focused on helping entrepreneurs.

canada recession
canada recession

Canada recession: Your network

Building a strong network is essential for anyone looking to advance their career or grow their business. Getting involved in local business groups and networking events is a great way to meet other like-minded individuals and make valuable connections. Joining professional associations or local clubs and organizations related to your industry is also a great way to expand your network and get your name out there.

Canada recession cost reduction ideas

With inflation pressures causing rising prices, cost reduction needs to be a key element of running your business. A gloomy economy can actually mask some great ways to save money. Creative ideas to reduce your start-up costs include:

  • Be very careful when making capital investments due to their mid and long-term nature. Leverage the economic situation and negotiate everything. You may be able to get a sharp drop in prices if you can demonstrate that you can afford to pay the lower price in full and on time.
  • Buying supplies from businesses that are about to go out of business or need to reduce inventory, especially bulky items like electronics and office furniture.
  • Barter with other business owners to find business alliance possibilities and suggest trading in products or services to offset costs.
  • Initially, do your own legal, financial and business homework through free online resources.
  • Compare business credit cards for the best deals.
  • Find a bank account that meets your small business needs including access to brick-and-mortar and online services as well as attractive rates and incentives.

    canada recession
    canada recession

Canada recession key takeaways

Before seeking financing, consult with another business owner or friend to review your business plan. Develop a marketing strategy tailored to your business goals. Start small and expand when you see improvements. Secure your network and find ways to keep costs down by utilizing available technology.

You should begin with small steps and then increase your efforts when you start seeing improvements. Make sure your network is secure and look for ways to reduce costs. Make use of appropriate existing technology.

Although it may be challenging, there are benefits to starting or running a business during an economic downturn. By being thoughtful and strategic about cost-cutting measures while still providing value to customers, you can set your business up for success.

Canada recession conclusion

I hope you found this Canada 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.

You are not to blame for your current situation. You have only been taught the old ways of dealing with financial issues, which are no longer effective.

We’re passionate about permanently solving your financial problems with you and getting you or your company out of debt. We offer innovative services and alternatives, and we’ll work with you to develop a personalized preparation for becoming debt-free which does not include bankruptcy. We are committed to helping everyone obtain the relief they need and are worthy of.

You are under a lot of pressure. We understand how uncomfortable you are. We will assess your entire situation and develop a new, custom approach that is tailored to you and your specific financial and emotional problems. We will take the burden off of your shoulders and clear away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We realize that people and businesses in financial difficulty need a workable solution. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We can tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. If any of this sounds familiar to you and you’re serious about finding a solution, let us know.

Call us now for a no-cost consultation.

canada recession
canada recession
Categories
Brandon Blog Post

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.

You are not to blame for your current situation. You have only been taught the old ways of dealing with financial issues, which are no longer effective.

We’re passionate about permanently solving your financial problems with you and getting you or your company out of debt. We offer innovative services and alternatives, and we’ll work with you to develop a personalized preparation for becoming debt-free which does not include bankruptcy. We are committed to helping everyone obtain the relief they need and are worthy of.

You are under a lot of pressure. We understand how uncomfortable you are. We will assess your entire situation and develop a new, custom approach that is tailored to you and your specific financial and emotional problems. We will take the burden off of your shoulders and clear away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We realize that people and businesses in financial difficulty need a workable solution. The Ira Smith Team knows that not everyone has to file for bankruptcy in Canada. Most of our clients never do, as we are familiar with alternatives to bankruptcy. We assist many people in finding the relief they need.

Call or email us. We can tailor a new debt restructuring procedure specifically for you, based on your unique economic situation and needs. If any of this sounds familiar to you and you’re serious about finding a solution, let us know.

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is canada in recession
is canada in recession
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Brandon Blog Post

WILL AN INTEREST RATE HIKE IN CANADA BE NECESSARY AND WOULD IT BE EXCRUCIATING FOR CANADIANS?

As the COVID-19 pandemic continues, we hope that you, your family, and your friends are safe, healthy, and secure. Ira Smith Trustee & Receiver Inc. is fullynt operational, and both Ira and Brandon Smith are readily available for phone or video consultations.

Interest rate hike in Canada: Introduction

The Bank of Canada Governor, Tiff Macklem, announced on December 15, 2021, that the slack in the economy caused by the Coronavirus pandemic has substantially decreased. It is a clear indication that the central bank will begin an interest rate hike in Canada process in 2022. In addition, he said the central bank was concerned about the rate of inflation, which was at an 18-year high of 4.7% and well above its control range of 1-3%.

Here is a Brandon Blog about why at least one interest rate hike in Canada is likely in 2022 and what that means.

Interest rate hike in Canada: Canadian borrowers prepare as U.S. central bank warns of 3 rate increases in 2022

The U.S. central bank will now direct its attention to battling inflation. As it slows down its bond-buying, the Federal Reserve may raise rates as soon as April 2022. U.S. central bank forced to end stimulus due to job creation, expanding economy, and soaring inflation.

Fed says it will end its pandemic-era bond purchases in March, signalling it has met its inflation target. Federal Reserve rate increases are inevitable for Canadian borrowers. In the event that the Federal Reserve was to wind down stimulus faster and hike rates more rapidly, rising rates would have a greater impact on the Canadian economy. Governor Macklem will be free to act without fear of damaging Canadian exports if the Fed decides to increase interest rates.

Inflation is too hot right now. That’s the message from both the US and Canada central bankers.

interest rate hike in canada
interest rate hike in canada

Interest rate hike in Canada: Higher interest rates are coming. Omicron is unlikely to change that

At the beginning of the pandemic, the Bank of Canada reduced its benchmark interest rate to the current low level of 0.25 percent. Generally, a central bank will elevate its benchmark interest rate to cool down an overheated economy and control inflation. To stimulate a cold economy, it will decrease the rate of interest, which will encourage individuals as well as companies to borrow and spend.

To bring inflation under control, various economists predict that the Bank of Canada will need to raise interest rates in 2022. The argument is that monetary policy is the best way to deal with permanent, sustained inflation. According to them, a series of rate increases is needed to deal with it. As the federal government has suggested, recent inflation acceleration won’t be transitory.

In spite of the current outbreak of the Omicron variant, economic data from as recently as December shows the economy continues to outperform.

Interest rate hike in Canada: No need to hike benchmark interest rate just yet, Bank of Canada says

It is now difficult to find a senior economist that believes interest rates won’t rise to bring ongoing inflation under control by the end of 2022. Despite repeated attempts from the Canadian Government, the public isn’t convinced that Canadian inflation is minimal.

Canada’s central bank is the Bank of Canada, a crown corporation. Statistics Canada’s Consumer Price Index (CPI) is used to make Bank of Canada decisions. With the inflation-control target introduced in 1991, the ideal range for annual inflation is 1% – 3%, with the midpoint of 2% as the common target rate.

The Bank of Canada now says that the labour market slack has been absorbed significantly. It says the interest rate will remain at record lows until the economic slack is sustainably abated, which is currently forecast for the middle quarters of 2022.

Until Q2 or Q3 of 2022, the Bank of Canada expects its policy interest rate to remain at 0.25%. Until the second half of 2022, CPI inflation is also forecasted to remain above 2%. Currently, the Bank of Canada is keeping its policy interest rate unchanged. Eventually, economic levers currently being used, such as quantitative easing, will no longer be enough.

interest rate hike in canada
interest rate hike in canada

Interest rate hike in Canada: Rate hikes don’t fix bottlenecks and can hurt Canadians

Current inflationary pressures are due to supply chain disruptions, pandemic-related supply bottlenecks and energy prices. Hopefully, the economy will be more healed in the second half of 2022 before central bankers hike rates.

Considering the amount of outstanding debt, Governor Macklem should be careful not to raise borrowing costs too quickly or too much. If the Bank of Canada waits too long to begin an interest-rate increase, the rate hikes will have to be more dramatic, and Canadians aren’t ready for dramatic increases.

As the market rates are already preparing for a higher rate outcome, the average Canadian doesn’t need to prepare for the level of interest rates itself. Canadians will be affected by the pace of rate increases, in my opinion.

The current low-interest rates are designed to help borrowers weather the pandemic caused economic storm. In addition, since the outbreak of the pandemic, real estate prices have risen significantly, possibly creating a housing bubble in Canada. The Bank of Canada and the government are under pressure to lower stimulus because of asset bubbles in real estate and other assets.

Interest rate hike in Canada: How Will Higher Interest Rates Affect Me?

As a result of supply constraints resulting from Coronavirus-related events, low-interest rates will eventually end due to inflation. Meanwhile, there are concerns about another strain of this pandemic causing more economic damage. With no indication that the pandemic will ease any time soon, the Bank of Canada is inclined to gradually raise rates to avoid shockwaves reverberating throughout the entire economy.

Some Canadians may be affected by higher interest rates. In the long run, the Bank of Canada will have to make every effort to maintain a stable economy.

As Canadians struggle to get back to normal, they are concerned about the impact of a rate hike. A higher interest rate could lead to less consumer spending and job losses, according to some economists. Variable-rate mortgage debt holders will have higher interest costs. The same goes for those with fixed-rate debt, such as mortgage debt, whose term is set to expire. They are concerned about having to renew their mortgage debt at a higher interest rate. Business borrowings with a variable interest rate pegged to the financial institution’s prime rate will also cost more.

The one thing we know for sure is that many Canadians are concerned about the future and what changes in interest rates may mean for them. Nonetheless, the Bank of Canada will not raise interest rates overnight. It typically takes the central bank several months to set interest rates.

Whenever the Bank of Canada decides to raise rates, it will carefully consider how it will affect different groups of Canadians, such as those with mortgages and those without homes. In the case of mortgage holders, the Bank of Canada wants to ensure that they can afford their mortgages when interest rates rise.

In order to maintain the economic recovery, the Bank of Canada must manage the risks associated with rising interest rates.

interest rate hike in canada
interest rate hike in canada

Interest rate hike in Canada: Summary

I hope you found this interest rate hike in Canada Brandon Blog informative. Although nothing is guaranteed, managing your debt in a way that will allow you to be able to afford it, even if there is an interest rate hike in Canada, will lead to your financial success. It will also give you the best shot at having a financially stress-free life.

Are you or your company in financial distress and a debt crisis? Are you embroiled in costly litigation or a crushing debt load and need a time out in order to restructure? Do you not have adequate funds to pay your financial obligations as they come due? Are you worried about what will happen to you? Do you need to search out what your debt relief options and realistic debt relief solutions for your family debt are? Is your company in financial hot water?

Call the Ira Smith Team today. We have decades and generations of experience assisting people looking for life-changing debt solutions through a debt settlement plan and AVOID the bankruptcy process.

As licensed insolvency professionals, we are the only people accredited, acknowledged and supervised by the federal government to provide insolvency advice and to implement approaches to help you remain out of personal bankruptcy while eliminating your debts. A consumer proposal is a Government of Canada-approved debt settlement plan to do that. It is an alternative to bankruptcy. We will help you decide on what is best for you between a consumer proposal vs bankruptcy.

Call the Ira Smith Team today so you can eliminate the stress, anxiety, and pain from your life that your financial problems have caused. With the one-of-a-kind roadmap, we develop just for you, we will immediately return you right into a healthy and balanced problem-free life.

You can have a no-cost analysis so we can help you fix your troubles.

Call the Ira Smith Team today. This will allow you to go back to a new healthy and balanced life, Starting Over Starting Now.

As the COVID-19 pandemic continues, we hope that you, your family, and your friends are safe, healthy, and secure. Ira Smith Trustee & Receiver Inc. is fully operational, and both Ira and Brandon Smith are readily available for phone or video consultations.

interest rate hike in canada
interest rate hike in canada
Categories
Brandon Blog Post

EXPENSIVE REAL ESTATE MARKET IN TORONTO MAY SLOW DOWN SAFELY DUE TO HOMEBUYER’S GRIDLOCK

real estate market in toronto
real estate market in Toronto

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

If you would prefer to listen to the audio version of this Brandon Blog, please scroll to the very bottom and click play on the podcast.

Real estate market in Toronto introduction

Over the last few years, a lot has been written about the red hot real estate market in Toronto and Vancouver. Not even the COVID-19 pandemic has been able to slow them down. Many have predicted that the real estate market in Toronto is a dangerous bubble about to burst.

There is always a need for housing in Toronto. COVID-19 with the Ontario lockdowns and stay-at-home orders has created much change but has not slowed down the real estate market in Toronto. Many people are moving to the suburbs to get more space now that they have been working and living in their homes 24/7. As a result of travel bans, immigration into Canada has temporarily slowed down immigrants still moving to Toronto.

I recently read two articles that are about totally different aspects affecting the real estate market in Toronto. However, when I put these two very different ideas together, it leads me to the conclusion that natural economic forces may be enough to slow down the market for now without any government intervention.

Real estate market in Toronto: Canadians piled on mortgage debt during COVID-19

In my June 9, 2021, Brandon Blog, IS MORTGAGE DEBT NOW THE OBSESSION FOR MANY CANADIANS? I wrote about the mortgage debt surge and its effect on the overall rise in Canadian consumer debt according to Equifax Canada.

An article published in the Toronto Star on June 30, 2021, looked at Canadians who piled on mortgage debt during COVID-19 and how some economists fear a significant correction in the market. The thrust of the article is about:

  • the upward pressure on the average price of a home because of bidding wars;
  • how first-time buyers are being squeezed out of the real estate market in Toronto given the rise in the average home price/average selling price of a home in the GTA;
  • both first-time homebuyers and homeowners in urban centres looking to move farther out and even into the country both for affordability and to get more space since they plan to make working from home a permanent feature in their life;
  • how people have maxed themselves out on mortgage debt and how an increase in interest rates may cause financial problems for those homeowners and ultimately a significant correction in the housing markets and a drastic drop in housing prices.

    real estate market in toronto
    real estate market in Toronto

US interest rates

The US Federal Reserve recently announced that based on its expectations for rising inflation this year, it has advanced the timeline for interest rate hikes. However, the Fed offered no indication as to when it will begin reducing its aggressive bond-buying program. Fed Chairman Jerome Powell acknowledged that the topic was reviewed at a recent Fed meeting.

Advancing the time frame for raising the rate of interest is all relative. The policymaking Federal Open Market Committee left its benchmark short-term borrowing rate at near zero. Yet officials indicated that rate increases won’t come until 2023, after saying last March, it saw no increases until at the very least 2024. So interest rates in the US are anticipated to stay very low for the foreseeable future. So if the US Fed is not increasing interest rates any time soon, mortgage rates should not be either.

Canadian interest rates

At its June 9, 2021 conference, the Bank of Canada held its target for the overnight rate of 1/4 percent, with the Bank Rate at 1/2 percent and the deposit rate at 1/4 percent. The Bank is maintaining its present expectations for the overnight rate. This is strengthened and also supplemented by the Bank’s quantitative easing program, which continues at a target pace of $3 billion each week.

With vaccinations proceeding at a quicker pace and provincial constraints easing over the summertime, the Canadian economy is anticipated to rebound strongly, led by consumer spending. Real estate market activity is expected to moderate yet stay very active. Solid developments in global demand and higher prices for commodities ought to bring about a strong recovery in exports and business investment.

real estate market in toronto
real estate market in Toronto

The real estate market in Toronto and interest rates

Therefore, it seems that there will not be upward pressure on interest rates, and therefore probably not on mortgage rates either, soon. Both the US Fed and the Bank of Canada do not seem to be in any hurry to increase interest rates.

Another factor in Canada is the newer mortgage stress test. This newer stress test was created to ensure that borrowers can meet a more stringent economic test to qualify for a home mortgage. Effective June 1 of this year, the newer test requires borrowers to qualify at the higher of an annual rate of interest of either 5.25 percent or 2 percent over the current published home mortgage market rate they can get.

This makes it harder for some to qualify for a home mortgage. The federal government hopes this will lead to lowering the pool of qualified borrowers and therefore at some point, decreasing house prices.

Both the US and Canadian governments seem happy to not try to battle inflation through increased interest rates. Coming out of the pandemic, both countries will welcome their economies bouncing back and growing. Inflation will be a natural by-product of the resurgent economies. Higher prices will mean that employers will have to increase minimum wages if they wish to attract employees to handle business growth. A higher minimum wage without any government intervention of new legislation because of inflationary pressures will be a dream come true, especially in the United States. In Canada, it is always good to head into an election while there is good economic growth.

Given all of the above, I don’t see that the real estate market in Toronto being affected by increased mortgage rates, because, there won’t be an increase in 2021 and possibly not even in 2022. So I don’t see higher interest rates being a factor at all in causing downward pressure on house prices, especially in Canada’s largest city.

Real estate market in Toronto: Homebuyer’s gridlock

The second article deals with homebuyer’s gridlock. How does this relate to the real estate market in Toronto? We have seen that people staying in their homes 24/7 during the coronavirus pandemic has allowed them to reevaluate their long-term housing needs and lifestyle choices. This has kept the Canadian real estate market strong as people see what they like and what they don’t like in their current homes. They want to get more of what they like and want, put their home up for sale and buy that home they feel will suit their needs better.

Other than for perhaps empty-nesters, those making the move are generally buying larger homes. The normal progression is that immigrants coming into Canada, which has been reduced during the pandemic, generally start as renters in Canada’s biggest cities. The dream of all renters is to become first-time homebuyers.

Prospective homebuyers start looking for their starter home. It could be a condominium, a townhouse or semi-detached or detached house. They end up buying from someone who is selling their first home. That person now looks for a larger purchase in the mid-tier. They buy from someone looking to go up into a much larger and perhaps their dream luxury home. Ultimately, the empty-nester luxury home dweller looks to downsize and more than likely will be looking to buy in the condo market. All this market activity fuels the Canadian housing market activity keeping real estate prices strong and strong demand for all types of housing.

Zillow Canada commissioned a new study from Ipsos Reid. Buried among the usual analyses on things like affordability was an unusual item. Home prices across Canada have increased so much, lots of property owners can’t afford to sell. A quarter of house owners all set to sell have not listed, since they can’t afford their next move. This is what a homebuyer’s gridlock is. People are “locked” into their circumstances. It only happens throughout the frothiest of markets, which we are apparently in.

But what happens to market activity if one or more of these different buyer types cannot afford that next move? It means that there will not be as many sellers at different levels of homes. If the number of buyers does not decrease in ratio to the decrease in sellers, this will cause bidding wars and upward pressure on prices.

To determine if there is going to be downward or upward pressure, we have to know the supply and demand statistics for each level of housing. One thing for sure though, if the number of buyers decreases, this means less demand. Less demand means that prices would not increase. They may not drop dramatically, but they certainly will not increase either.

real estate market in toronto
real estate market in Toronto

Real estate market in Toronto summary

With borrowing costs remaining low, the mortgage stress test making sure that borrowers can afford their mortgage at higher interest rates and now many would-be sellers not able to afford that next move up, I don’t agree with those market watchers who are predicting a huge real estate market in Toronto bubble about to burst.

Rather, I see market conditions remaining relatively stable, with perhaps less volume of activity than we have seen over the last couple of years. Average house prices may go down, but I don’t believe it is going to be a huge drop. Rather, I think the real estate market in Toronto may take a bit of a rest, until the next round of price appreciation. Ultimately, population growth in and around the GTA should fuel a new cycle of pent-up demand that will create new demand for ownership housing in Canada’s major cities.

I hope that you found this real estate market in Toronto Brandon Blog interesting. Problems can arise when there are increases in the prices of the goods and services that you need when you already have too much consumer debt.

If you are concerned because you or your business are dealing with substantial debt challenges, whether you need gambling debt help or just plain old debt help and you assume bankruptcy is your only option, call me.

It is not your fault that you remain in this way. You have actually been only shown the old ways to try to deal with financial issues. These old ways do not work anymore.

The Ira Smith Team utilizes new modern-day ways to get you out of your debt difficulties with debt relief options as alternatives to bankruptcy. We can get you the relief you need and so deserve. Our professional advice will create for you a personalized debt-free plan for you or your company during our no-cost initial consultation.

The tension put upon you is big. We know your discomfort factors. We will check out your entire situation and design a new approach that is as unique as you and your problems; financial and emotional. We will take the weight off of your shoulders and blow away the dark cloud hanging over you. We will design a debt settlement strategy for you. We know that we can help you now.

We understand that people and businesses facing financial issues need a realistic lifeline. There is no “one solution fits all” method with the Ira Smith Team. Not everyone has to file bankruptcy in Canada. The majority of our clients never do as we know the alternatives to bankruptcy. We help many people and companies stay clear of filing an assignment in bankruptcy.

That is why we can establish a new restructuring procedure for paying down debt that will be built just for you. It will be as one-of-a-kind as the economic issues and discomfort you are encountering. If any one of these seems familiar to you and you are serious about getting the solution you need to become debt-free, contact the Ira Smith Trustee & Receiver Inc. group today.

Call us now for a no-cost bankruptcy consultation.

We hope that you and your family are safe, healthy and secure during this COVID-19 pandemic.

Ira Smith Trustee & Receiver Inc. is absolutely operational and Ira, in addition to Brandon Smith, is readily available for a telephone consultation or video meeting.

Call a Trustee Now!