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Is Canada on the verge of getting sucked into a recession? The experts dig in

The 360 shows you diverse perspectives on the day’s top stories.

Liberal leader Justin Trudeau and Conservative leader Andrew Scheer disagree on Canada's economic path forward (REUTERS)
Liberal leader Justin Trudeau and Conservative leader Andrew Scheer disagree on Canada's economic path forward (REUTERS)

What’s happening

The Great Recession is far off in the rearview mirror for a lot of Canadians as they think about who to vote for in the upcoming federal election. It would seem like the economic wounds have largely healed.

But no economic expansion can go on forever.

Warning signs of a recession — two straight quarters of negative GDP — are flashing.

There’s the inverted yield curve, which has historically been an economic grim reaper.

A trade war between the U.S. and China, the world’s biggest economies, is hitting consumers in their pockets.

The economies of Germany and a number of other countries are sputtering. A Brexit deal has been reached, but there’s still uncertainty around how the U.K.’s separation from the EU will play out.

Canada is something of a mixed bag as job growth continues to blow past expectations, but GDP growth is relatively subdued.

Why there’s debate

There isn’t a ton of agreement on the next recession, especially as the U.S. economy is chugging along.

Some don’t believe in the fortune-telling value of an inverted yield curve, while others say central banks can step in to avert disaster.

Few can agree on when a recession will hit, what will cause it, or how bad it will be.

Canada was briefly in a recession in 2015 during the oil price collapse, but that’s largely considered an ‘Alberta recession.’

Even during the Great Recession, Canada remained relatively unscathed thanks to a sound banking system.

But what happens the next time around? We asked experts from across the board for their take. Here’s what they told Yahoo Finance Canada.


Like a weather forecast

“Recessions are like rainy days. Eventually, we have both of them, but our forecast is that while there are material risks of one, interest rate cuts and at least some reduction in U.S.-China trade tensions will have the U.S. and Canada avoiding a recession in the next two years, even if part of Europe and some emerging markets experience a recession. Our forecast does not extend beyond two years.” — Avery Shenfeld, chief economist, CIBC

“Timing of a recession is hard if not impossible to predict, it depends on how the geopolitics plays out. For now, major economies continue to forge ahead with positive, albeit softer, growth. It’s very possible that a recession will be averted in the near term.” — Pedro Antunes, chief economist, Conference Board of Canada

“We are still not buying into the recession talk; perhaps growth will slow, but it will be hard to get negative GDP with strong employment and (generally) strong economic data. Recessions are part of any cycle. We have had lots, and the market is still close to records. Most are short and shallow. The pain of 2008 persists, but the odds of that type of scenario seem very low.” — Peter Hodson, founder, 5i Research

Is it Trump’s fault?

“Pretty much all of it. If not directly, then indirectly.” — Ted Mallett, chief economist, Canadian Federation of Independent Business

“Protectionism and policy uncertainty are factors in the global slowdown, though the business cycle also looks late – and thus vulnerable – by a variety of metrics that have little to do with U.S. public policy.” — Eric Lascelles, chief economist, RBC

“I would say that Trump's trade policies, not just the trade war with China but the disruption caused by tariffs and his protectionist policies have played a big role in undermining growth. But we also have the Fed over-tightening, the Brexit file, the weak state of the European banking system and China's credit bubble to point to as well.” — David Rosenberg, chief economist, Gluskin Sheff

Has the horse already left the barn?

“It has already begun in the business sector as trade volumes, capital spending and industrial production are in notable downtrends. The hit to consumers will occur with a lag.” — David Rosenberg, chief economist, Gluskin Sheff

"There will be a recession… eventually. But predicting when one will hit is a lot harder than identifying when it’s already happening. On a positive note, job market metrics like the Sahm indicator aren’t flashing red, but the recent drop in global manufacturing confidence is still a cause for concern.” — Brendon Bernard, economist, Indeed.

“Despite what people hear, things have been pretty good lately for most Canadian households. Especially in the past year as job growth exploded, the unemployed rate fell to record lows, and wage growth accelerated well above inflation. Canada is in better shape than most economies to fend off a recession, in terms of our ability to leverage fiscal and monetary policy, although we could have been in better shape.” — Pedro Antunes, chief economist, Conference Board of Canada

Stock market buying opportunities for bargain hunters

“If it is not officially here before the end of 2021, I would be amazed. And Canadian stocks overall will be beaten up. Beaten up stocks mean more bargains out there. I’d say it works, if not every time, just about.” — Benj Gallander, president, Contra The Heard Investment Letter

“In terms of sectors, utilities and communications are the places to hide, if you are scared as an investor. Banks could be weak in a deep recession that brings down housing prices and boosts corporate loan losses.” — Peter Hodson, founder, 5i Research

Could this time be different?

“Every recession is different to some degree. The last global downturn was labeled the Great Recession since it was the deepest since the 1930s Depression. Most recessions are milder in terms of the scale of the downturn.” — Avery Shenfeld, chief economist, CIBC

“First, EVERYONE is expecting a recession. Generally, problems don't occur when you are expecting them. Second, stock valuations seem to be adjusting to the possibility anyway. There is lots of cash around.” — Peter Hodson, founder, 5i Research

“One concern will definitely be deficit spending. Normally stimulus spending only happens during economic downturns, but the Trudeau government has been running them even during good times. This reduces the fiscal capacity to borrow if a recession does actually hit.” — Aaron Wudrick, federal director, Canadian Taxpayers Federation

Collateral damage

“There is a zero probability that a highly trade-sensitive country like Canada emerges unscathed. We are little more than a torque on global growth. Add on the debt-strapped Canadian consumer and unaffordable housing to the mix.” — David Rosenberg, chief economist, Gluskin Sheff

“Recessions don’t affect all people the same. Government workers and skilled people will be less affected, if at all. A recession would be more problematic to young workers, lesser-skilled and those producing export goods and services.” — Ted Mallett, chief economist, Canadian Federation of Independent Business

“If the U.S. economy were to go into a recession, Canada would likely follow given tight cross-border industrial integration. Canadian households are more vulnerable to a deterioration in labour markets than in the past given high debt levels.” — Nathan Janzen, senior economist, RBC

Opening the door to the housing market

“Home price appreciation has been strong throughout Canada, averaging about 6 per cent annually since 2005. Price gains in Toronto and Vancouver have been stronger. A recession would definitely slow price gains or even lower price.” — Pedro Antunes, chief economist, Conference Board of Canada

“A recession would bring plusses and minuses for housing prices: weaker income gains and household confidence are negatives, but lower interest rates would provide a cushion.” — Avery Shenfeld, chief economist, CIBC

“Given household debt vulnerabilities, housing markets would soften and prices would likely decline in places like Toronto and Vancouver in event of a recession.” — Nathan Janzen, senior economist, RBC

Jessy Bains is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jessysbains.

Yahoo Finance Canada
Yahoo Finance Canada

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