Most economists are predicting a Canadian recession

Happy Canada Day.

The long-awaited Canadian recession keeps being postponed.

Maybe it doesn’t matter if it arrives or not.

After all, polls show that most Canadians think we are already in a recession. The further downturn we have been warned about is expected to be mild and short.

We are not in a recession, officially defined as two consecutive quarters of negative economic growth.

But since last fall we have been in an economic slowdown. For many Canadians, that slower growth combined with above-average inflation and interest rates feels like a recession.

And that explains the restraint in consumer and business spending that helped push inflation to 3.4 percent in May, the lowest level in nearly two years.

Still, the economy is proving resilient, if not robust, in part because Canadians have not gone to extremes with frugality. At a moderate level, people are still spending and companies are still investing.

It also takes time for a cycle of rate hikes to have its full effect in curbing economic growth enough to meet the 2 percent inflation target set by the Bank of Canada and most central banks.

And finally, there are the weird economics of the pandemic and its aftermath.

Savings rates skyrocketed during the period of unprecedented lockdowns and infusions of public money into households.

Canadians are still using those savings to meet the extraordinary pent-up demand created by the pandemic, and to cope with the historically high inflation that resulted.

Recessions are typically characterized by a shrinking economy, a sharp decline in consumer and business spending, high household and corporate debt levels and high unemployment.

A recession without those negatives, especially a deep and prolonged one, would be one of the strangest ever. And those factors Are largely absent.

Canadian economic growth in the first quarter was unexpectedly strong at 3.1 percent.

Companies came into this slowdown with strong balance sheets.

The real estate market has recovered after a short timeout. Consumer spending recovered in April and May after two months of no growth.

And the economy remains at near full employment for the first time in decades.

Can the BoC achieve a ‘soft landing’

Still, most economists predict a recession in the next 12 months.

They think the bank may not be able to deliver a “soft landing,” in which inflation is tempered without crashing the economy.

Leading economist David Rosenberg, who still expects a recession, warns that once a recession starts, it will be difficult for the bank to bring about a quick economic recovery by cutting interest rates.

That’s true.

But there is a certain stubbornness to the doomsayers’ recession narrative.

Initially, they predicted a recession from the first quarter. That was pushed back to the second quarter.

Now the consensus of economists is hedging its forecasts by predicting a recession sometime next year.

Anything can happen in a year.

Vladimir Putin can be impeached. OPEC could once again saturate the world with cheap oil. Ottawa could lower food prices by imposing a surcharge on excess profits, as the NDP is proposing.

In the meantime, Canadians, who have had 15 months to adjust to rising interest rates, may be conditioned to higher borrowing costs.

And that they look forward to even milder inflation next year and lower interest rates the following year.

And that they act accordingly, with more confidence than forecasters expected.

Canadian household debt is the highest in the G7, a fact distorted by the country’s booming real estate market.

But it is also the case that many Canadians do not have a mortgage.

And that homes purchased during the era of frenzied pandemic buying make up only a tiny fraction of total home ownership.

And while high interest rates have not yet had their fullest impact, there is also a lagging effect on the massive economic stimulus provided by the state’s cash injections into global economies.

The US is pumping more than $2 trillion into infrastructure, decarbonizing its economy and regaining its leading position in semiconductors. The European Union (EU) and China are each bolstering their economies with hundreds of billions of dollars in stimulus spending.

Ottawa has committed approximately $80 billion in tax credits to green economy initiatives alone.

That stimulus, which will flow in an orderly manner over several years, will offset much of the downward pressure on economies from high interest rates.

Previous seasons of economic uncertainty were caused by irrational exuberance. It is characterized by admirable prudence.

As long as a recession is a possibility, only a rogue would advise suspending that caution.

However, we deserve our treats.

Since Taylor Swift opted not to have Canadian concert dates, Canadian members of Taylor Nation have spent $2,000 or more on tickets and travel to see her in Las Vegas and Glendale, Ariz.

Some expenses just can’t be postponed.

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