The Canadian News

Recession Road: What kind of economic downturn is Ontario headed for? heads out on the road to learn more about the potential recession — and how it would affect communities across Ontario

Written by Kat Eschner

The Big Five banks are all headquartered in Toronto. (mbbirdy/iStock)

TORONTO — On a late November morning, I leave my apartment piled high with bags — a grey duffel holding a week’s worth of clothing; a brown backpack full of books, papers, and cosmetics; a tote full of snacks; and a black gear bag, complete with a tripod sticking up on the side — expecting that a cab will materialize in front of me within half a block or less. Instead, I spend 15 minutes or so wandering from streetcorner to streetcorner, sticking my arm out, waiting, debating whether to spend $20 on a Lyft that would take 10 minutes to arrive, considering whether to haul everything to the car-rental place on foot. Every cab I see either already has a passenger or ignores me completely.

The cab driver who finally takes pity on me is named Marian. He tells me that cabs in Toronto aren’t really cruising anymore. For one thing, people aren’t flagging: hailing through the taxi apps is much more common. For another, gas is expensive. As he speaks, I realize that my memories of hailing cabs in Toronto are all more than three years old, and they happened on the other side of the pandemic. In the end, the short ride costs about $10 before tip — significantly less than a Lyft at the same hour.

The rapid changes of the past few years have changed more than the taxi industry (which, let’s face it, was already dealing with rideshare apps). The ongoing COVID-19 pandemic and years of supply-chain instability have fundamentally altered the way we live and what we buy. Russia’s illegal invasion of Ukraine and the worsening impacts of climate change,  like this summer’s heat wave in China, have intensified the chaos and driven up costs.

Agenda segment, November 25, 2022: How unaffordability is hitting Ontario

Economies thrive on stability — in other words, the continuation of the status quo. On the negative side of that ledger is the ongoing suffering and inequality that’s baked into capitalism. On the positive side is the basic good that comes from being able to predict, for example, how much food will cost in a week and roughly what will be available on a trip to the grocery store. Slow inflation of at or somewhat under 2 per cent, the Bank of Canada’s goal, helps maintain that status quo, for better or worse: hence this year’s aggressive interest-rate hikes, which are intended to slow spending and decrease demand.

I pick up the rental car, a black Volkswagen Passat with more than 40,000 kilometres on it and a corona of scrapes on the paint, and edge into traffic. I’m headed on a road trip to report a series of stories on how the province is faring under current economic conditions. Most experts expect that Canada will head into a recession in early 2023, and is calling this series Recession Road, but that’s just shorthand: We know, whether we’re technically in a recession or not, that post-acute-pandemic economic hardship has burdened many Ontarians for a while. Explainer: What is a recession?

Technically speaking, a “recession” in Canada is defined as two or more quarters of negative GDP growth. If the amount of goods and services Canada produces isn’t growing, the economy is stagnant (zero per cent growth) or it’s shrinking (negative growth, also known as a contraction). Since modern capitalism is premised on the possibility of indefinite growth, no growth means everything gets weird.

So, with all that said: Are we headed for a recession?

Toronto is a useful place to start when we’re talking about that question: the Big Five banks are all headquartered here. At the same time, Toronto is home to the world’s biggest housing bubble and rampant inequality. It’s a city in which people live in tents across the street from some of the country’s most expensive real estate. It’s a city suffering a massive municipal funding crisis. It’s a city full of broken garbage cans and locked public bathrooms. It’s also a city with a deep well of financial expertise, so I put the question to a few local experts.

Listen as’s editor-in-chief, Graeme Bayliss, introduces the Recession Road series.

They all agreed that the answer is most likely yes. And, unlike the most recent recessions — from 2020’s sharp reaction to the beginnings of the pandemic to 2008-2009’s downturn caused by the market crash — this one will be the result of Bank of Canada policy.

“The level of interest-rate increases we’re seeing, historically … means that it’s very unlikely we’re not going to have a recession,” says Sheila Block, an economist with the Canadian Centre for Policy Alternatives. Add in all those other factors — war, climate change, disease — and she thinks an affirmative answer becomes even more likely.

Canada’s central bank has been attempting to avoid a recession and engineer what’s known as a “soft landing” — a return to inflation of around 2 per cent per year without a preceding crash into recession. Many are skeptical. In July, the Royal Bank of Canada predicted there would be a recession in early 2023.

“It was really hard to not see a contraction of some sort over the next year or so,” says RBC economist Claire Fan, who was part of the team that made the call. At the time, RBC was an outlier, something Fan attributes partly to the fact that “calling for a recession itself is eliminating the possibility of a soft landing, which the central bank is to this day insisting is possible.”

Fan is quick to emphasize that a soft landing isn’t impossible, per se. “It’s just obviously that we attach a smaller per cent of probability to it than our base case, where we think there probably will be a contraction of some sort.”

Since its initial prediction, RBC has updated its thinking to predict that Canada may see negative economic growth as early as the first three months (the first fiscal quarter) of next year. Fan and colleague Nathan Janzen wrote in a recent analysis that the coming recession, while likely to be moderate in economic terms, will hit some Canadians much harder than others: “As debt-serving costs increase and purchasing power declines, lower income Canadians — many already adjusting to the loss of pandemic support — will be hit hardest.”

Agenda segment, November 16, 2022: Finance minister: Is Ontario heading for a recession?

The Bank of Canada itself isn’t formally predicting a recession, but it does expect that the first two fiscal quarters of the year will see stagnant GDP growth. In that time, “it’s just about as likely that we’ll get some small negatives as we’ll get some small positives,” BOC governor Tiff Macklem acknowledged to reporters during a recent press call.

In this, Canada isn’t an outlier. In response to inflation, central banks around the world have raised interest rates, risking the exact same dynamic that RBC (and now many others) are forecasting for Canada in 2023. The international financial community is predicting that enough big and small economies are likely to enter policy-induced recessions in 2023 to constitute a “global recession.” The world’s biggest economy, the United States, has been flirting with recession all year.

But we are particularly vulnerable to the winds of economic fortune. “Canada is a small, open economy,” says economist Julia Wendling of Toronto consulting firm Rosenberg Research. “We could be hit particularly hard if the global economy slows down, particularly in the U.S.”

I’m not exactly a business reporter, although following business is part of my job: I report on affordability, which means I write (and talk) about the often-uncomfortable space between money and people.

That’s exactly where recessions hit, and why most of us get a bit stressed out thinking about one. This recession — or downturn or whatever it ends up being — is likely to hit some jobs harder than others. “What I see as the most vulnerable sector, particularly in Ontario, is construction and real estate,” says Block. Canada’s red-hot housing market has slowed a bit in recent months, with the knock-on effect of spiking rent prices around the country at a rate much higher than either overall inflation or wage growth. If the economy enters a recession, she thinks, the bubble may well burst, which means anyone in the construction sector or anyone who has invested in real estate may see losses. Those losses, given the importance of housing to Ontario’s economy, will have ripple effects.

Wendling concurs. “Especially in Toronto, we just have this incredible housing-market bubble,” she says. As housing valuations come down, she believes rent prices will also drop, although she notes there would likely be a lag.

Fan and Janzen forecast that the unemployment rate will near 7 per cent in 2023, up more than 1 per cent from the current rate of 5.2 per cent. While they don’t address housing or construction in their note, they anticipate that manufacturing may see job losses, especially since the U.S. is Canada’s primary export market for manufactured goods, as well as raw materials. Hospitality and travel, they suspect, will see smaller losses than in other recessions. “There remains lingering demand for travel and hospitality services after two years of pandemic lockdowns,” they write.

“Even taking aside potentially more harmed sectors,” says Block, “I think what we really need to look at is who has the financial cushion to be able to ride this out and who doesn’t.” She points to the impacts of racism and marginalization as two key factors. Another factor: home ownership. Owning a large asset such as a house, which can be borrowed against and provides housing security, will cushion some from the financial effects.

While Toronto may be Ontario’s financial heart, it isn’t the centre of the universe. It’s just another big, dirty city full of tired (sometimes mask-wearing) commuters, and it’s just one municipality among many around the province dealing with issues of affordability and governance. That’s why leaving town is an integral part of my beat and why I’m taking the Gardiner Expressway (talk about an affordability issue) out of town, heading to Windsor.

Ontario Hubs are made possible by the Barry and Laurie Green Family Charitable Trust and Goldie Feldman in Memoriam.


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