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

Just a month ago, the answer would have been different. But with the coronavirus pandemic, layoffs, and travel cancellations, it looks like we’re clearly headed that way now.

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.

3 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.

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

1) 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.

2) 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 ‒ an unfortunate reality right now as many are forced into quarantine. 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.

3) 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 can indicate a recession could be starting:

  1. rise in unemployment,
  2. rise in bankruptcies, defaults, or foreclosures,
  3. falling interest rates,
  4. lower consumer spending and consumer confidence,
  5. 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.

Which recession symptoms are the coronavirus causing?

Even though we need to go through those 2 quarters of negative GDP before a recession can technically be declared, the symptoms are already pretty clear – it’s nearly certain that we are at the start of a recession already.

1) Rise in unemployment

We’re already seeing workers with their hours cut, reduced to 0, or outright let go being reported everywhere on social media.

The Statistics Canada employment numbers, which had previously been strong, haven’t been updated yet for March. We’re almost certain to see a steep decline in employment once the numbers are tabulated.

The hardest hit industries and businesses include airline, cruise, hotel, events, entertainment, non-essential retail, and many more. Anything that involves a large number of people coming together has come to a grinding halt.

Worse, this massive drop in wages will have a domino effect across many other industries as well.

2) Rise in bankruptcies, defaults, or foreclosures

With people out of work and the debt load and house prices in Canada at record highs in many regions of the country, it’s only a matter of time before mortgage and loan defaults, bankruptcies and foreclosures start racking up.

Fortunately, the government is starting to step in and take measures to provide relief for people who have lost their jobs.

Bookmark this coronavirus resource page for information and updates on these programs.

3) Falling interest rates

The Bank of Canada has already made two emergency “Policy Interest Rate” cuts amounting to a 1% decrease in interest rates. More cuts could be on the horizon to help stimulate the economy and make loans more accessible to those that need them.

Nearly all banks and lenders have followed suit in lowering their interest rates on savings accounts and loans. This is typical because their own interest rates are based on the Bank of Canada rate.

4) Lower consumer spending and consumer confidence

The immediate impact of the coronavirus is actually quite a large increase in spending on consumable goods like food and household products. Shelves are regularly being reported as empty across the country.

However, with social distancing and self-isolating happening country-wide now, spending is likely to fall off sharply. That, combined with the impact from loss of income and belt tightening that has yet to be felt in its full force, means that spending will drop dramatically once the panic buying stops.

All of this fear and reduction in consumer spending power will likely cause the consumer confidence index to plummet in March and the near-term future.

5) Falling asset prices

Real estate and home ownership is almost sacred in Canada, which is why house prices have been so astronomically high for such a long period. People were starting to succumb to the thinking that “real estate always rises,” and that home ownership would never be affordable for many.

If there is anything that can pop our current real estate bubble, the fallout from the coronavirus is definitely it.

That said, the government is already stepping in by buying $50-billion in mortgage debt. However, this move is more meant to protect the financial system in the face of consumer defaults and mortgage non-payment so they can keep operating and lending to those who need it.

It’s too early to tell just how deep or how long this potential fall in real estate prices will be.

What economists were predicting before the coronavirus pandemic

So what were economists predicting coming into 2020 only a short time ago?

Brett House, Vice President & Deputy Chief Economist at Scotiabank, didn’t think we would see one this year. He predicted 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 wasn’t any agreement – one thought we’d be fine, and the other thought we would certainly see a recession.

People have been calling for a stock market crash and recession for years now. So, until recently, there was definitely a lack of clarity on whether 2020 would be the year.

These are the economic indicators people were looking at near the end of 2019 and early 2020 to try and predict the future:

Canadian economic forecast

So what was Canada’s economic forecast? The Canadian Outlook Economic Forecast had these main highlights (Winter 2020 summary):

  • 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 was looking 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.

Early in 2020, the numbers were holding steady.

Our economy added 34,500 net jobs in January 2020, while our unemployment rate fell to 5.5%.

Looking a little further, Stats Canada was 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 was on the rise, as shown by this graph:

Growth in employment in Canada

Canada’s housing market in 2020

So what about our housing market?

Early 2020 showed that prices were expected to increase as well.

The market correction for the federal government’s mortgage stress test had passed, and more buyers were 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.

Is Canada going into a recession in 2020?

At the beginning of the year it would have been easy to say ‘yes’ or ‘no’ with a relatively equal chance of being right.

However, now that coronavirus is spreading rapidly and people are self-isolating to flatten the curve, a large impact on employment and the economy is nearly inevitable.

With all 5 of our recession indicators either already underway or moving in that direction, it is highly likely that we’ll see the 2 quarters of negative GDP growth to solidify this as a recession.

8 ways to recession-proof yourself

Now that we’re likely at the beginning of a recession already, time is running short to prepare yourself for the impact.

However, now is still a good time to learn how to recession-proof yourself for both now and the future:

1. 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.

2. 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.

3. 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.

4. 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
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* No income requirement
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Best Western Mastercard 1.99% for 10 months (terms) * $0 annual fee
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BMO CashBack Mastercard 1.99% for 9 months (terms) * $0 annual fee
* $15,000 personal
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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 whopping 10 months. 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 a lower 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:

5. 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 both during a recession and later in life.

In the event that you lose your job during a recession, many banks and lenders will allow you to skip mortgage payments if you are ahead of schedule. The more you’re ahead, the more payments you can skip. Check with your mortgage lender to see if this applies to you.

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.

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

Does the simple thought of a recession or stock market crash make you nervous? It may be time to reassess your risk tolerance.

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

Unfortunately, now that the stock markets have already crashed, switching now might not be the best move as you would be locking in your losses and missing out on the nearly inevitable recovery that has always happened after previous recessions.

Seek out professional financial advice for guidance before making any rash decisions.

Related: Compounding Your Cash Back For Retirement

7. 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.

8. 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.

Your thoughts

Talks about recessions can be chilling for many, but at the end of the day these things do tend to happen around once every decade or so.

The best thing you can do is prepare for the “what ifs” – but it also isn’t worth worrying about it nonstop. We can’t predict the future and everything that comes.

Now that a recession is likely in 2020, let us know in the comments what you’ve done to prepare ahead of time or what you’re doing last minute to weather the current storm.