It seems increasingly likely that several countries, including Canada, will soon enter a recession. But this shock should not be too violent and quickly lead to an upturn, think experts. At least they hope so.
Invited on Tuesday to deliver a speech to students from the University of Waterloo, the Deputy Governor of the Bank of Canada, Paul Beaudry, did not want to estimate the risks that the rapid rise in interest rates in recent months would succeed so well in dampening the momentum of consumers and businesses that it end up tipping the Canadian economy into recession. US Federal Reserve Chairman Jerome Powell didn’t say it the next day either, but it was close. “The chances of a soft landing are diminishing,” he admitted after raising interest rates another 0.75 percentage points in his relentless fight against inflation. “No one knows if this process will lead to a recession and, if so, how severe that recession will be. »
The Bank of England, for its part, did not take a detour when announcing, Thursday, a seventh consecutive increase in its key rate, adding that the British economy was probably already in recession. “There is a high probability that Hong Kong will record negative GDP growth this year,” also said on the other side of the globe its finance secretary, Paul Chan, reported Agence France-Presse.
The coming recession
Several more will follow, said Ben May, director of research at analyst firm Oxford Economics, on Tuesday. In fact, out of 25 developed economies analyzed, at least 14 are expected to enter recession by the end of the year or the beginning of 2023, including the United States, most European countries and Canada.
We often hear that the technical definition of a recession is the presence of two consecutive quarters of negative economic growth. On that account, the US economy would already have been in recession since the start of the year, with an annualized decline of 1.6% in the first quarter and 0.6% in the second. But a real recession is more than that. It also comes with a significant decline in employment, a marked decline in income, as well as a decline in production, sales and investment, recalled this week the Associated Press. The United States is not there yet.
In this case, the economic slowdown will largely come from the war that central banks are waging against inflation by raising interest rates, but not only, British economist Adam Tooze explained on Sunday to subscribers to his newsletter. It comes from the fact that they are doing far too much and far too quickly because they have not been able to coordinate their action and that this is accompanied at the same time by an equally brutal reduction in government spending.
In Canada, the recession will likely begin in the coming weeks, predicted Tuesday Tony Stillo, another analyst at Oxford Economics. It will be caused in particular by the impact of rising interest rates on Canadians who are more indebted today ($1.82 for every dollar of disposable income) than Americans were at the time of the last financial crisis. . It will also come from their loss of purchasing power caused by inflation and the repercussions of the global economic slowdown on their exports.
The contraction of the Canadian economy would however be relatively moderate and should end in the middle of next year, for a total decline of 1.8% in gross domestic product, estimates the economist. This would be lower than the average of the recessions of the last 50 years (-2.5%), and much lower than the crises of 1981-1982 (-5.4%), 2008-2009 (-4.4%) and the first six months of the COVID-19 pandemic (-13%).
Desjardins Group economists also expect a “mild recession” in the first half of next year, they said Thursday in the update of their economic forecasts. Quebec should, for its part, manage to get away with it, but barely, with an economic activity “almost neutral until mid-2023[, mais] there will be a thin line between very weak growth and a slight decline in real GDP”. At only 4.5% last month, the unemployment rate should approach 6% in a year, but will remain relatively low due to the labor shortage.
Since most developed economies do not show major imbalances or major vulnerability, they should not suffer too much from their modest recessions in addition to emerging largely free of their problems of inflation and bottlenecks in the chains. supply, thinks Ben May. On the other hand, with all the tiles that have fallen on them in the last few months, it is not impossible that other misfortunes befall them.
In his Pre-election report controlled by the Auditor General, the Quebec Ministry of Finance had provided for a “provision for economic risks” of 2 billion per year, for a total of 10 billion over five years, in the event of an economic shock such as a recession. In their financial executivesthe Liberal Party of Quebec and the Parti Quebecois eliminated this provision, while the Coalition avenir Quebec reduced its total by two billion for the end of the period in question and the Conservative Party of Quebec and Quebec solidaire essentially left it as is.