There’s a lot of talk about a recession coming to Canada in 2020. Will it happen? Or are we worrying for nothing?

It’s time to cut through the noise.

Today, let’s look at what the common causes and symptoms of a recession are, what’s happening in Canada’s labour and housing markets now, and what some economists are saying.

Just keep in mind that no one can predict the future. While everything may look good, and predictions are rosy – things can change and make even the best predictions look like fool’s gold.

And what if a recession does happen? If you have credit card debt, we have some top balance transfer offers for you to look at ‒ plus 7 other ways you can stay financially ahead.

Common causes of a recession

First things first: What is a recession anyway?

A recession happens when the economy has 2 economic quarters in a row with a negative growth percentage. This is reflected in a decrease of our Gross Domestic Product (GDP), which is the total value of goods produced and services provided in a country during one year.

So what causes a recession?

Causes of recessions are many and can be quite complex. These causes are often grouped into 1 of 3 categories:

Overvaluation (a.k.a. Bubbles)

Think housing in 2008, or the overvaluation of stocks in 1929. This type of recession is often preceded by overconfident, risky investments and high interest rates.

These are relatively predictable, but often the problem is that there appears to be a lot of money to be made off these risky assets, and warnings are not enough of an incentive to stop.

Supply-side shock

An example is the oil crisis in 1973. These are hard to predict, as they’re often caused by some natural disaster, war, or human action (such as a monopoly asserting market power, as in the oil crisis in 1973).

A recession caused by the coronavirus could result in a supply side shock if the virus results in lost productivity that cannot easily be made up elsewhere. The severity of the supply-side shock, however, depends on how resilient our supply chain is, and which parts of it get hit by the shock.

Demand-side weakness

Demand-side weakness is often described as a lack of consumer confidence. This is rarely the trigger of a recession, but often comes into play when some other shock causes layoffs.

If the population doesn’t have adequate savings or a strong social safety net, demand-side weakness makes recovery very difficult. Things like stagnant wages, low household savings, and high consumer debt don’t predict recessions, but they do predict how difficult the recovery will be when a recession hits.

5 symptoms of a recession

Here are some symptoms that indicate we may be in a recession:

  • rise in unemployment,
  • rise in bankruptcies, defaults, or foreclosures,
  • falling interest rates,
  • lower consumer spending and consumer confidence,
  • falling asset prices, including the cost of homes and dips in the stock market.

All of these things have to do with how much money people have. If you have less of it, you’re not spending or contributing as much to the economy – and it’s reflected in the above factors.

Falling interest rates are the exception here, as they save you money on future loans (especially mortgages). Central banks will lower interest rates as a way to get more money into the economy if they think a recession is on the horizon. This is their attempt to help combat the possibility and reverse the numbers.

Let’s go over some of these key factors, and see what’s happening today.

What economists are predicting

So what are economists predicting? It’s actually a mixed bag.

Brett House, Vice President & Deputy Chief Economist at Scotiabank, doesn’t think we’ll see one this year. He predicts a year of mediocre growth, but no recession. Check out his CBC segment here.

But on the other hand, last October David Rosenberg, chief economist at Gluskin Sheff & Associates, thought there would be an 80% chance of a recession coming to Canada this year.

Even just looking at these 2 sources, there’s a mixed bag of results – one who thinks we’ll pretty certainly see one, and another who thinks we’ll be fine.

With these perspectives in mind, here are the current numbers (and forecasts) on some of those factors.

Canadian economic forecast

So what is Canada’s economic forecast? The Canadian Outlook Economic Forecast has these main highlights for this winter:

  • real GDP to grow by 1.8% in 2020, and 1.9% the next year,
  • slow global growth that will challenge our trade sector,
  • the Bank of Canada likely won’t make any interest rate changes in 2020.

Though the trade sector may face some obstacles, they don’t expect negative growth for our GDP – one of the main symptoms of a recession.

Canadian labour market remains steady

Our unemployment rate plays a big part in whether or not we see a recession. After all, the more people who are out there working, the more who can contribute to our economy.

So far this year, the numbers have been holding steady.

Our economy added 34,500 net jobs in January, while our unemployment rate fell to 5.5%.

Looking a little further, Stats Canada is showing a largely increasing employment trend when looking at the top 44 census metropolitan areas in Canada.

And overall, the number of people being employed continues to grow, as shown by this graph:

Growth in employment in Canada

Canada’s housing market in 2020

So what about our housing market?

To this point, prices are expected to increase as well.

The market correction for the federal government’s mortgage stress test has passed, and more buyers are now stepping back into real estate.

In the last quarter of 2019, housing prices increased by 2.2%, as interest rates remained low and labour markets strengthened.

As for this year? Should economic conditions remain constant and housing policies unchanged, housing prices should continue to increase.

This may not sound like a good thing if you’re a hopeful home buyer, but it’s a good sign for Canada’s overall economy.

Why Canada will likely avoid recession in 2020

Looking at those previous factors, it may seem like we may not see a recession this year.

And according to the Conference Board of Canada, they believe we’ll avoid a recession over the next 2 years, with GDP growth of 1.8% this year and 1.9% next year.

But that’s not to say it won’t happen.

Ongoing trade wars, even those that don’t involve us, always have the potential to have spillover effects on our economy.

And the coronavirus has the potential to cause some serious damage on its own.

So, while we may be in good shape right now, we can’t predict the future and there’s no telling when a recession may be at our door.

8 ways to recession-proof yourself

If there is a recession on the horizon, some of the best things people can do are get rid of debt ‒ and examine your overall financial health.

This way, if a recession hits and it affects you, you’ll be in better financial shape to weather it.

1. Fast-track your mortgage payments

One of the largest sources of debt in any household is a mortgage. However, unless you’re nearing the end of payments, you likely won’t be able to make your mortgage go away that easily.

So, if you have a mortgage that offers the ability to prepay a certain amount every year, making some extra payments every now and again can help shave a few years off your mortgage. This will afford you more financial flexibility later in life.

Variable vs. fixed interest rates

When you’re getting your first mortgage (or renewing your current one), make sure to consider variable rate mortgages as well.

While there’s some risk involved in getting a variable rate mortgage, as interest rates could rise and leave you paying more, they almost always have lower interest rates than a fixed rate mortgage. Fixed rate mortgages are usually higher as banks include some extra margins built in for fluctuations in rates.

In fact, most of the time, you’ll save money by having a variable over a fixed rate mortgage. Interest rates don’t change very often, and your interest rate will almost always be lower.

2. Get rid of credit card debt fast

Here are 3 top balance transfer credit cards to take a look at if you have some credit card debt sticking around. There are some rules when it comes to balance transfer credit cards, which you can find here.

One key rule to remember? You can’t transfer a balance to a credit card from the same bank. The balance transfer card you get has to be from a different bank than the one you’re currently carrying a balance with.

Credit Card Balance Transfer Offer Annual Fee, Income Requirements Apply Now
MBNA True Line Mastercard 0% for 12 months (terms) * $0 annual fee
* No income requirement
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Best Western Mastercard 1.99% for 10 months (terms) * $0 annual fee
* No income requirement
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BMO CashBack Mastercard 1.99% for 9 months (terms) * $0 annual fee
* $15,000 personal
Apply Now

Related: Best Balance Transfer Credit Cards In Canada

This offer is not available to residents of Quebec. For residents of Quebec, please go here.

The best balance transfer offer in Canada right now is the .

You’ll not only get a 0% introductory rate (the lowest possible) but it also applies for a whole year, longer than all the others. It’s the best of both worlds.

Just note you have to pay a balance transfer fee of 3% of the total amount being transferred, with a minimum fee of $7.50.

This offer is not available to residents of Quebec. For residents of Quebec, please go here.

Another balance transfer offer from MBNA is the .

This card has a balance transfer offer of 1.99% for a whole 10 months. But it has lower a balance transfer fee of 1%, with the same minimum of $7.50.

This same offer is also available with the .

Lastly, BMO has several no fee cards with great offers, led by the .

This card will get you an introductory balance transfer offer of 1.99% for 9 months. It’s not quite as good as the #1 offer, but the balance transfer fee is lower – only 1%, saving you money upfront.

Here are the other cards that also have this balance transfer offer:

3. Have an emergency fund ready and a secured line of credit

Having an emergency fund stashed away goes a long way towards helping weather a recession.

A basic rule to follow is having 3 months of net income saved, to give yourself time to find new work or wait for a layoff to end.

For a worst case scenario, having a secured line of credit as a backup will give you some emergency money if you need it.

4. If you’re nervous about a recession, it’s time to reassess your risk tolerance

A recession making you nervous? It may be time to reassess your risk tolerance.

Consider switching to low risk investments. You’ll give up the larger earnings you make with more aggressive portfolios, but your losses will be smaller as well.

Related: Compounding Your Cash Back For Retirement

5. Check your investment asset allocation and diversify

When investing, it’s important not to put all your eggs in one basket. If you only invest in Canadian stocks, or limit yourself to a few different segments of the economy, and there’s a downturn in the market – you’re really going to lose value in your portfolio.

Make sure you have a diverse array of investments. Not everything is going to tank in value, and you’ll be able to weather any storm much better.

6. Ensure your company can weather a recession

Worried about your business? Depending on what you do and what market you’re in, a recession can easily affect you with losses of revenue.

Keeping a large emergency fund to cover expenses (at least 6 months) is a good idea to keep you afloat. And make sure you’re diversified enough to minimize any decline in revenue as well.

7. Diversify your skills and make yourself indispensable at work

Recessions can lead to job losses and layoffs. You don’t want this to be you, but sometimes there’s no avoiding it.

However, here are a few things you can do to make sure you’re the one who doesn’t get let go:

  • Prove your worth and demonstrate your direct impact on the bottom line.
  • Increase your skills and study after hours.
  • Be the best at something no one else can do.
  • Take on more responsibility and go the extra mile.

8. Hold off on major purchases, vacations, or splurges you might otherwise make

It goes without saying if a recession is on the horizon and you’re concerned, hold off on a big purchase, vacation, or any other splurge – you may need that cash later.

Your thoughts

Talks about recessions can be chilling for some, but at the end of the day we don’t know what will happen.

The best thing you can do is prepare for the “what ifs” – but don’t waste all your energy worrying about it. We can’t predict the future and everything that comes.

What are your thoughts on a potential 2020 recession?

Let us know in the comments below.