What does this imply in terms of currency exchange? Simply said, in the event of a recession, the US currency may rise again, resulting in a less favorable exchange rate for Canadians who need to buy USD.
Will Canada experience a recession in 2021?
Canada is, unfortunately, in a recession in 2021. Current signals, such as consumer confidence and housing trends, are favorable, and many employment losses from earlier in 2020 have been reversed.
Was the Great Recession felt in Canada?
The Gandalf Group runs two main opinion polling programs in Canada. The C Suite Study, sponsored by KPMG and conducted for the Globe and Mail and BNN, investigates the views of Canada’s business leaders – the top 1,000 businesses’ most senior executives. The Consumerology Study, conducted for Bensimon Byrne, a Canadian advertising agency, examines the impact of megatrends or advancements on consumer behavior. Both of these research reports are published quarterly and provide a timeline of how Canadians and businesses were affected by the recession.
Between 2008 and winter 2011, tens of thousands of interviews with Canadians and thousands of interviews with business leaders were conducted.
Over the years, one of the more interesting things to follow has been how well executives comprehend and anticipate the major economic changes that would effect them. They have been remarkably perceptive on major issues. Their forecasts have almost completely matched the economy’s growth performance. Canadian executives noticed signs of weakening in the American economy as early as the beginning of 2007. There was widespread agreement among Canadian executive decision makers that the United States was in decline long before there was any sense of a global recession (figures 1a, 1b).
With the loss of the company pension, full responsibility for paying for retirement has shifted to the individual in the last generation. The individual didn’t receive the memo: only a small percentage of Canadians have enough savings or assets to provide a meaningful retirement income. For many people, the stock market meltdown made this unavoidably evident. Government measures to provide better economic security in retirement now have widespread backing.
While the corporate elite was sure that our economy would suffer a big downturn in the spring of 2008, most Canadians were ignorant of any probable economic upheaval. Until the fall of 2008, few noticed the rumblings from abroad. There was no equivocation when the sense of crisis came the period from the fall of 2008 to the summer of 2009 reflects the bottom of public opinion on the economy. The pervasive pessimism that pervades American society today never took root here. Even during the brief but deep dip in the winter of 2008-09, when many people were fearful, few expected the downturn to linger long, and most were optimistic that the country would rapidly recover (figure 2).
During this time, Canadian firms stopped anticipating and began to experience the effects of the recession. The fact that a high percentage of CEOs grew gloomy about their own companies’ prospects was particularly noteworthy. Many industrial and service organizations experienced a significant decline in demand for their goods and services, and many enterprises found themselves in a peculiar situation. Their problems originated from a shift in only one of their fundamentals: they couldn’t get money. There was no money in the capital markets, and, even worse, credit was not being issued. Banks were chastised by business executives, particularly resource corporations, for what they viewed as excessive tightening (figure 3).
The recession did not have the same impact on Canadians as it did on Americans. Canadians were spared the effects of the housing market collapse, and fewer people lost their jobs as a result. That isn’t to claim they were completely unscathed.
Allow me to give you an example. Based on the findings of many Consumerology investigations, we’ve concluded that nothing predicts consumer spending more accurately than whether consumers believe their personal finances are improving or deteriorating. Consumer confidence indexes are commonly used to gauge how consumers feel about the economy. According to our findings, these are not the key influences on public opinion. Regardless of how you think the national economy will do or what you read in the media, if you are feeling impoverished, you will tend to spend less money.
The percentage of Canadians who felt worse off in April 2009 was 17 points greater than a year earlier. It was a significant deterrent to consumer spending for 60% of Canadians. The rich members of society were the outliers, as they were better able to withstand negative effects, and the majority of their losses were in investments, which recovered faster than the work situation. The highest-income Canadians were the least likely to have made significant changes in their spending in recent years. To put it another way, the stock market recovered ahead of the job market.
The country’s middle class was shocked, and they adopted some new attitudes and behaviors that have lasted to this day (figure 4).
The fact that people were susceptible when the economic crisis occurred was one of the reasons why the recession was so devastating.
Personal debt is a hot topic right now, but Canadians, like their government, went into the recession with far too much debt. People who are attempting to live a lifestyle they cannot afford, aspire to a level of living that the broad middle class can no longer support, not if they are supposed to be saving for their retirement, their children’s education, and a rainy day, are creating this debt. The majority of Canadians are dissatisfied with their financial situation and rely on credit to make ends meet.
Without include their homes and mortgages, 60 percent of Canadians have more debt than savings. Three-quarters of all parents with children at home fall into this category. These borrowers are experiencing the recovery in a totally different way than those who are debt-free, resulting in two distinct consumer groups. For the past year, people who are debt-free have felt the wind in their sails, and they have been opening their wallets and reintroducing some frills into their lives. People who were in debt before the recession hit are still cutting back and are unable to enjoy small indulgences like eating out every now and then or taking the family on vacation (figures 5a, 5b).
The fact that most people’s debt surpasses their savings is also symptomatic of most people’s poor savings levels. With the loss of the company pension, full responsibility for paying for retirement has shifted to the individual in the last generation. The individual didn’t receive the memo: only a small percentage of Canadians have enough savings or assets to provide a meaningful retirement income. For many people, the stock market meltdown made this unavoidably evident. Government measures to provide better economic security in retirement now have widespread backing (figure 6).
Is Canada about to experience a recession?
According to a new study, two-thirds of Canadians are “in a psychological slump” following two grueling epidemic years.
According to Pollara Strategic Insights’ annual economic outlook, such negative emotions about the economy are actually better than they were in 2021.
“Canadians are in a psychological slump,” Pollara president Craig Worden said Tuesday, “but we are seeing signals of progress compared to last year.”
Indeed, 66% believe Canada is in a recession, despite the fact that the economy has been expanding since the third quarter of 2020, the first year of the COVID-19 epidemic, while 23% feel it isn’t and 11% aren’t sure.
In contrast, 81% of those polled last year said the country was in recession, while 9% said things were improving and 10% said they had no view.
“It’s encouraging to see Canadians’ economic perceptions improve,” Worden said, noting that public perception of recessions generally lags behind reality.
Two consecutive quarters of negative quarter-over-quarter economic growth are considered a recession.
Pollara polled 2,000 adults across Canada using an online panel from Jan. 13 to 18, with a margin of error of plus or minus 2.2 percentage points 19 times out of 20.
What impact would a US default have on Canada?
President Barack Obama stepped into the White House briefing room on Thursday, seeming upbeat as he said progress was being made in talks with congressional leaders to raise the country’s debt ceiling.
In a White House meeting, Democrats and Republicans agreed “that we have to get this done before the hard deadline,” Mr. Obama said, alluding to the need to reach an agreement on the country’s $14.3 trillion (US) debt ceiling by Aug. 2 to avoid a financial crisis.
Even though Mr. Obama stated that there is still a long way to go to break the deadlock between Republicans and Democrats, the sighs of relief among those in the American financial industry were practically audible – but economists in Canada are also keeping a close eye on the situation, fearful of what would happen if the United States defaulted on its debt.
In an interview on Thursday, James Marple, a senior economist at TD Bank, said, “This has never happened before, so the really worrisome thing is that we have no idea how catastrophic it could be.”
“We only know that the safety of US treasuries underpins the whole global financial system. It would destabilize the entire financial asset pricing system… it’s safe to conclude that predictions that this would be a Lehman Brothers-style meltdown, or worse, are true.”
In 2008, Lehman Brothers Holdings, a global financial services firm based in the United States, filed for bankruptcy, which contributed significantly to the subsequent global economic meltdown.
Mr. Marple’s gloomy judgment was echoed by Sal Guatieri, senior economist at Bank of Montreal.
“The simple line is that if the United States defaulted on its debt, there would be a lot of uncertainty thrown into global financial markets, and we really don’t want to go down that road and really experience it,” he said.
If no agreement is achieved by Aug. 2, long-term interest rates will almost surely rise, according to both analysts. This would raise the cost of corporate borrowing, which would have a detrimental impact on the Canadian economy.
“If the United States’ economy is on the verge of another recession, Canada’s prognosis will be reduced as well,” Mr. Guatieri said. “If the United States defaulted, there would be financial contagion into Canadian share markets, which would undoubtedly plummet.”
While there may be some discomfort in Canada if the United States defaults on its debt and has its credit rating lowered, both Mr. Gautieri and Mr. Marple point out that the destruction in the United States would be considerably greater.
According to the White House, if the debt ceiling is not lifted, the US Treasury will be unable to pay interest and principal on Treasury bonds, military salaries and retirement benefits, and even individual and corporate tax refunds. In reality, all such payments would be halted.
Both Canadian economists were encouraged by Mr. Obama’s upbeat tone when he announced that debt talks with congressional leaders will resume over the weekend.
Republicans, Democrats, and the White House are attempting to reach an agreement on a multibillion-dollar plan that would decrease the country’s massive deficit while also preventing the United States from defaulting on its debts.
The discussions are focusing on a variety of entitlement programs, including Medicare, Medicaid, and Social Security, as lawmakers strive to save money by closing a slew of tax loopholes for the rich and companies.
Mr. Obama stated, “Both staff and leadership will be working over the weekend.” “On Sunday, I’ll call a meeting of congressional leaders here in the hopes that the parties will at least know where each other’s bottom lines are.”
He said that by Sunday, the group “hopefully would be in a position to then begin engaging in the hard bargaining required to get an agreement done.”
Democrats in Congress were alarmed by a report in the Washington Post that suggested the White House was willing to accept cutbacks to Social Security, the beloved American entitlement program for retirees. Nancy Pelosi, the House Minority Leader, was allegedly enraged that she had not been contacted.
Progressive Democrats have historically opposed cutting entitlement programs in order to lower the national debt, just as Republicans have refused to contemplate tax increases. However, economists have pointed out that to make any major dent in the debt, a combination of tax rises and spending cuts will be required.
On Thursday, the White House denied that its position on Social Security had changed.
After Mr. Obama left the James Brady briefing room following his brief statement, White House Press Secretary Jay Carney said at the daily briefing, “This story is really not news at all.”
He went on to say that while the president has long said that Social Security is not a large contributor to the deficit, he does want to “strengthen” the program.
Meanwhile, Republicans vow that no tax increases would be imposed on the American people. Rather, they want to tighten loopholes that allow rich Americans and corporations to pay less tax every year, which some people may see as a tax increase.
The White House has issued a warning that an agreement must be reached by July 22, two weeks from now, in order for Congress to adopt legislation before the August 2 deadline.
According to John Kurgan, a senior market strategist at Lind Waldock Canada, a commodity futures firm, “they’ll come to some sort of 11th hour accord.”
“There is nothing to gain for anyone if the debt ceiling is not raised; it will be disastrous for both parties. However, an election year is approaching, and the Republican Party needs to win back independents and placate the Tea Party, so they must take a hard stance right now. There’s a lot of political wrangling going on right now.”
What happens to currencies in a downturn?
Readers’ Question: What happens to a currency’s value during a deep recession and high inflation?
There is no hard and fast rule for what happens to a currency’s value during a deep recession; nonetheless, a currency’s value is likely to fall as the country becomes less appealing as a place to invest. The UK, for example, saw a huge depreciation when the Great Recession began in 2008.
Between 2007 (before the start of the Great Recession) and July 2009, the Pound Sterling plummeted by more than 25%.
The US dollar index (which measures the value of the US dollar against a trade-weighted basket of other currencies, such as the Euro and the Yen) has varied, but it has been relatively stable since the recession began.
Although the United States was in recession in early 1980, the value of the dollar soared during this time.
In the 1980s, the UK had a similar experience. In 1980, there was a quick appreciation in Sterling (which was one reason contributing to the 1980/81 recession.)
Economic theory behind the value of a currency in recession
Assume that one country, such as the United Kingdom, has a recession that is more severe than all of its competitors. What can we anticipate the currency to do?
Interest rates and the recession We should expect UK interest rates to decline in comparison to other countries if the UK enters a recession. This would make the UK less appealing to save money investors. Hot money is anticipated to depart the UK in search of greater interest rates in other countries. People will sell Pounds and buy other currencies if they shift money out of the UK, causing the value of Sterling to plummet. As a result, we might predict a currency depreciation in the event of a recession.
Evaluation
1. Inflation is likely to fall during a recession. Lower inflation will aid the country’s competitiveness, and this will likely raise demand for the currency, causing it to appreciate.
2. A currency’s value is influenced by a variety of circumstances. If the UK had a high current account deficit, for example, we may expect the currency to be under pressure from the trade deficit. Sterling’s depreciation in 2008 was due in part to the UK’s trade imbalance and lack of competitiveness. However, because Germany has a big current account surplus, there may be less downward pressure on its currency (the Euro) if the country goes into recession.
Is Canada on the verge of a recession?
“The Bank is concerned that it will be pushed below its effective lower bound. In these unusual times, I believe it is prudent to experiment with a 10bps reduction and see what happens. It can travel in small steps until it reaches the lower bound.” Lander remarked.
Craig Alexander, Deloitte’s senior economist, ruled out a dip below zero: “Although the economy is in a deep slump, lowering interest rates will not help to stimulate the economy.” He believes the Bank of Canada will keep rates unchanged until the second half of 2021.
Given the amount of slack in the Canadian economy created by efforts to limit the COVID-19 pandemic, Brett House, deputy chief economist at Scotiabank, believes the policy rate won’t be raised until 2022.
Is 2022 going to be a bad year for Canada?
In 2022, will the economy return to normal? In 2022, the Canadian economy, like the rest of the world, will continue to move from pandemic recovery-driven growth to more regular growth.
Canada has experienced how many recessions?
A “double dip recession” occurs when the economy enters a downturn, rebounds for a quarter, and then enters another downturn. A double dip recession mimics the shape of a W when plotted on a graph.
Regional Recessions in Canada
Because each province is exposed to distinct industries that are affected by different variables, recessions can develop regionally in Canada. If the oil and gas markets drop in Alberta, for example, a recession may develop there, but not in Ontario, if manufacturing and services stay stable, or vice versa. A recession in Canada occurs when all of the country’s regions and provinces are in decline.
How Businesses Respond to Recession
Recessions can have some positive benefits. They can motivate businesses to focus on efficiency and product quality in order to compete more effectively. They can also motivate businesses to seek out new markets in order to remain profitable. Small entrepreneurial enterprises that can compete with lower costs and innovations can thrive during recessions. They have the potential to compel larger corporations to reconsider the scope of their operations and how they are handled. During a recession, certain defensive enterprises that remain steady during economic cycle fluctuations perform better than others. Food manufacturers and discount retailers are examples of companies with consistent demand for their products. Nonetheless, recessions are difficult for most people due to overall losses in productivity and wages, as well as more unemployment.
Economic Stimulus Government Response to Recession
The government strives to maintain economic confidence by limiting the frequency and duration of recessions. To do so, the government uses interest rates, the money supply, and spending to try to actively influence business cycles. If the economy appears to be heading for a downturn, the government can lower interest rates and expand the money supply in the hopes that individuals and businesses will borrow, invest, and spend more. In addition, the government can spend more in order to boost total economic activity and employment through creating jobs and company activity in the economy. New investments in infrastructure, research, and education could result from the government’s response.
Determining a Recession
The government is in charge of determining whether or not the economy is in or out of recession. Since the Bank of Canada and the Minister of Finance prepare the country’s economic reports using Statistics Canada data, this is disseminated through them. Since 2015, the Federal Balanced Budget Act has defined what constitutes a recession and set some limits on how much the federal government can increase its operating budgets in response.
Economists and the government are attempting to identify indicators of economic activity that can anticipate whether or not a recession is imminent. Leading indicators are what they’re called. A combination of sharp stock market dips, declines in retail sales or the volume of inventories held by businesses, and a sharp drop in housing values are examples. Similarly, there are indicators of economic activity called as trailing indicators that prove the occurrence of a recession. Real GDP, wages, and incomes are all declining, as is international trade, and unemployment rates are rising.
The C.D. Howe Institute’s Business Cycle Council, a group of Canadian economists that defines business cycle dates in Canada, is another source of information regarding recessions.
History of Recessions in Canada
Recessions are uncommon because the economy is normally in expansion mode. Since 1970, Canada has endured five recessions and twelve since 1929. Recessions normally span three to nine months; the most recent one, from 2008 to 2009, lasted seven months. Since 1970, every recession in Canada has coincided with a recession in the United States, demonstrating that the two economies are well linked (see Canada-US Economic Relations). However, the severity of a recession in Canada is determined by a variety of factors, including which sectors of the economy are experiencing a downturn. The Canadian economy, for example, is highly dependent on natural resource activity such as oil and gas, mining, and lumber.
Why was Canada not as seriously hit by the Great Recession in 2009 as the United States?
Insolvent businesses were not bailed out by the government (just a couple of lend- ing programs to address market volatility relating to problems in the United States). Canada was the only G-7 country to avoid a financial crisis, and the recession it experienced was milder than those in the 1980s and early 1990s.