Canada on the way to recession

by Maj (ret'd) CORNELIU. CHISU, CD, PMSC, FEC, CET, P. Eng. Former Member of Parliament Pickering-Scarborough East The fall is upon us; the trees are changing colors as the landscape gets ready for the upcoming winter. We are moving towards the winter blues as a dark cloud rises on the horizon; the certainly an upcoming recession. Canada faces growing economic headwinds as key trading partners teeter on the brink of recession, piling worries about trade and commodity prices on top of concerns about the domestic economy. Global growth is being hit on multiple fronts. Central banks around the world, led by the U.S. Federal Reserve, are raising interest rates at the fastest pace in decades - intentionally slowing their economies, ostensibly, to fight inflation. The European energy crisis escalated this week, with the apparent sabotage of the Nord Stream pipelines that ship gas from Russia to Europe. Meanwhile, Britain is in the midst of a currency and bond market meltdown, which pushed the Bank of England to intervene in markets and warn of a "material risk to U.K. financial stability. The Organization for Economic Co-operation and Development said earlier this week it expects the world economy to be US$ 2.8-trillion smaller in 2023 than it projected a year ago. And things could get a lot worse, the OECD warned, if a cold winter in Europe leads to energy rationing and new gas supplies fail to materialize. Increasing taxes, skyrocketing government debt, expanding regulations, soaring inflation and rising interest rates. Does that sound like Canada today? In fact these were the practices that defined Pierre Trudeau's tenure as prime minister in the 1970s and early 1980s, eventually culminating in a near crisis. Today, we are heading for a similar situation with accelerated speed, as well as facing an international crisis. Without any fresh ideas, the current Trudeau, Justin, as Prime Minister, is taking a similar approach to the economy. The worsening of the economic situation internally added to the global trade chain disruptions will certainly have a disastrous effect on our economy. At the end who will be impacted in Canada? Certainly not the elite or the inefficient and overblown civil service. It is the ordinary Canadians who will suffer, with no relief in sight. Despite repeated assurances from the governing Liberals I predict that the recession will be severe and will take place once the new year, 2023, starts. According to new data from Statistics Canada, the Canadian economy grew by a modest 0.1 per cent in July. Their estimates, however, show economic growth stagnating in August, when the annual inflation rate reached 7.0 per cent, down from a high of 8.1 per cent in June. The signs are there and Canada's cooling housing market will play a significant role in that slowing. The latest Statistics Canada figures show output from real estate agents and brokers dropping 3.4 per cent in July, down for the fifth consecutive month and this trend will certainly continue. Since peaking in February of this year, home sales across the country have declined 31% and prices have fallen 17%. With its itchy fingers on the panic button and claiming to fight inflation, the Bank of Canada raised interest rates to 3.25 per cent on Sept. 7, which has contributed to the cooling of the housing market. The increase followed a full percentage point hike in July, which was the largest single rate increase in Canada since August 1998. The Bank of Canada began hiking interest rates in March, after they fell to 0.25 per cent during the COVID-19 pandemic. Some economists predict the next interest rate hike will come on Oct. 26 and it will likely be six, nine, or even 12 months before we start to see the Bank cutting rates again because they'll want to be certain that they brought inflation under control. In these circumstances, it is the Bank of Canada, an independent entity from the Government of Canada, that will dictate economic policy, rather than the government. Connected to a web of international banking interests led by the Bank of International Settlement (BIS) it is difficult to predict their future actions. With economic growth slowing, the job market across Canada will weaken, likely raising the unemployment rate. Slowing growth in the United States will also weigh on Canada's economy in the months ahead based on our close economic relations. Eventually the crucial variable for Canada is what will happen in the United States. There, the outlook has darkened over the past weeks as the U.S. Federal Reserve Bank (Fed) doubled down on its efforts to curb demand in the U.S. economy and get prices under control. The Fed raised its benchmark interest rate by 0.75 percentage points last week, to a range of 3 per cent to 3.25 per cent. The rate hike was expected. But updated projections showed policy makers expect to push the Fed Funds rate to between 4 per cent and 4.5 per cent by the end of the year - considerably higher than previously forecast. "That (in fact) materially raises the risks that the U.S. economy has a hard landing. And if the U.S. has a hard landing, I think it's very hard for Canada not to have one as well," said Craig Alexander, chief economist at Deloitte Canada. Beyond the U.S., the growth picture is even more dire. China's economy is expected to grow at the slowest pace in decades this year (excluding 2020 and the COVID-19 shock), as the country struggles with strict pandemic-control measures and a real estate crash. In Europe, the war in Ukraine and Russian sanctions have sent natural gas and electricity prices soaring. That's squeezing consumers and making energy-intensive businesses unprofitable, pushing many European Union countries, as well as Britain, toward a period of stagflation: the painful combination of low growth and high inflation. The OECD now expects the euro area to grow just 0.3 per cent in 2023, down from a projection of 1.6-per-cent growth in June. The German economy is expected to contract 0.7 per cent next year, while the British economy is expected to post no growth. So in conclusion, with a Liberal government at the helm, that seems to have no real sense of the economy and seems oblivious to these other complicated issues, we can expect to face hard times ahead. So keep your chin up, and take care of your families as best you can.