A technical recession is often defined as two straight quarters of negative gross domestic product (GDP) growth.
But the country may be facing a different type of recession as some sectors, like tech, have been feeling the pinch.
A string of high-profile tech layoffs, including at Google Canada, Dell and Shopify, have led experts to ask – is Canada in the midst of a “richcession”?
“A ‘richcession’ occurs when the wealthy get hit more than usual. And this is uncommon because normally in a recession, we see low-income households and, to an extent, the middle class hurting a lot more, whereas for the wealthy it is just a minor inconvenience,” Tu Nguyen, economist and ESG director at RSM Canada, told Global News.
One forecaster said all recessions usually have some sectors that tend to do worse than others, but noted the pendulum might be swinging in the other direction.
“For example, the pandemic had a severe effect on the service class of workers as restaurants and retail establishments were closed down. A lot of workers that tended to be in the lower income categories were laid off and therefore had to be supported by other government measures,” said Ted Mallett, director of economic forecasting at the Conference Board of Canada.
2:08 Economy grew in May, slowed in June: StatCan
Nguyen said there is evidence that Canada may already be seeing a “richcession” as workers in higher-paying fields have been dealing with the brunt of job losses.
“Since the pandemic happened, a lot of government support has poured out and is really helping a lot of low-income families to pay off debt, to sack away some savings,” she said.
“In addition, we see that a lot of lower paid workers have been making a lot of strides in gaining wages. Most notably, PSAC (negotiated) a historic 12% increase in wages. And that is that is huge. Now, in contrast, we see that a lot of layoffs that have been happening in the economy are concentrated among the higher paid workers, like in tech, for example.”
Mallett said if one observes the tech layoffs in the United States, an interesting trend emerges.
While there have been significant cutbacks and layoffs, tech employment overall has not declined.
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“People let go from either Meta or Google or what was known as Twitter, tend to have been reabsorbed into the workforce in some of the smaller, perhaps less high-profile businesses out there,” he said. “It looks like those skills are still being needed and absorbed into the sector.”
He added that Canadian companies may have similar needs.
Nguyen said this phenomenon of high-paid workers taking a pay cut may reduce income-inequality and, in turn, save Canada from a full-blown recession.
“We are seeing minimum wage workers, low wage workers, blue collar workers gaining higher wages, getting more power thanks to the labour shortages while we’re seeing higher paid workers maybe not gaining as much,” she said. “In the end, we have less income inequality, which is not necessarily a bad thing.”
Nguyen said Canada might also be facing what is a “rolling recession” – where different sectors of the economy take a hit at different times.
“We’ve seen housing taking us some earlier this year, but that is recovering. The real estate market is incredibly active. We see that manufacturing was having some difficulties last year due to supply chain disruption, but they are doing very well right now,” she said.
“Now, tech, in contrast, is still going through layoffs and restructuring and not doing as well. And we see other industries like services that haven’t taken any reduction at all.”
Mallett said this phased slowdown would soften the blow of the recession.
“The slowdown will be more gradual and be softer,” he said.
He added that while Canadian employers may slow down their hiring efforts, they may be unwilling to part with highly skilled employees. That may prevent mass layoffs.
“We’re not predicting anything close to the financial crisis of 2008 because in that case, it hit the financial sector in the States, which immediately brought almost every other sector to a halt. It was a very much a big deal. In this case, we’re dealing with sectors that are not quite so connected to each other as implicitly as finance,” he said.
Mallett said they are predicting a recession for later in the year.
“We think that the last half of the year is going to be pretty weak,” he said.
“We think that there’s a good possibility it’ll be negative, but mildly negative. For most people who have secure employment, they will not necessarily feel the effects.”
Some economists have also forecast a downturn later this year.
TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
