What is a recession and should we be panicking?
WTF is a recession?
Every once in a while, we hear a ton of talk about a recession in Canada, and tbh, even though we know it's something bad, we don't totally know what it means. So for those who are as financially challenged as we are, this one's for you.
A recession is a period of significant decline in economic activity, as indicated by Gross Domestic Product (GDP) and tons of other economic and social factors, that happens over time. A recession is typically declared after 2-3 months of widespread decline in economic growth
In a capitalist economy, recessions are considered a 'totally normal' part of the ebbs and flows of the 'business cycle'.
In the financial world, a recession is seen as the market correcting itself after experiencing a 'shock' that interrupts the moderate rhythm of economic expansion and contraction. But wtf does that mean for people like us?
We've got it all wrong
It's frustrating to hear the way recessions are repeatedly framed in narratives by media, businesses, and politicians. Even when we wrote this post, time and time again the sources we pulled from sympathized incredibly hard with big businesses.
The way to talk about recessions needs to change:
Businesses and rich leaders constantly touting that 'we're all in this together' is a load of crap. Recessions aren't bad for everyone, and they don't affect everyone equally. Many businesses, including big grocers (we're looking at you, Loblaws), have and will continue to profit in recessions.
A recession isn't an "unavoidable" part of our system: it's an economic strategy enacted to balance out the market that prioritizes the needs of big businesses at the expense and danger of individuals
Solutions are often framed around personal responsibility, which is nothing short of neoliberal bullshit. We need collective action.
Narratives about recessions lend way too much sympathy to businesses, which serves to further people in power—while workers (and those without work) remain the most vulnerable. In order to achieve collective liberation, we need discourses on the recessions that centre workers' rights.
Recession 101
We won't hide it, recessions can be bad news for the average Canadian. When there's a decline in the economy, struggling businesses fold, people lose their jobs, wages take cuts, and the working class is left to fend for themselves - but what does this actually look like for Canadians?
Businesses Make Cuts: Businesses that are able to stay afloat through the pressure of a recession will likely make cuts to their investments, production capacity, their workforce and/or wages in order to stay profitable or hold their market power against the competition.
Unemployment and Underemployment: Many businesses make cuts to labour instead of their bottom line by reducing the number of available working hours, freezing or cutting wages, or laying off employees.
Affordability is Impacted: While recessions could reduce price inflation as economic activity decreases, they also pose the risk of stagflation, where inflation accelerates while unemployment rises and economic growth slows. In a stagflation scenario, a recession could force cuts to income while the price of things like housing and gas continues to rise (re: life in 2022)
What causes a recession?
A recession is often caused by a systemic credit crunch - when too many people and businesses have borrowed too much money, and can't afford to pay it back when inflation rises. When other large-scale events (like a global pandemic that has taken over 6 million lives) 'shock' the business cycle when a credit crunch is looming, recessions can get serious. But it's not just covid:
War: While we may not feel directly affected by the war in Ukraine, the repercussions are global. From the price of gas exploding, to food shortages, the war has huge implications on the global economy.
Consumer Confidence: People who see what's going on in the world expect even higher prices tomorrow that they cannot afford, and in response often exit regular economic activity and/or withhold their typical spending. Less economic activity comes from less consumer demand.
Domino Effects: A major collapse in one sector can create waves throughout the economy. Just like the 2008 U.S. housing crash, rising interest rates in the Canadian housing market could set off bigger problems
Red flags to watch out for
Banks have been warning us about an incoming recession by 2023, using economic forecasts. While these aren't the only red flags and they aren't always sure-fire signs, they can be indicators that help us understand where we're at.
GDP (Gross Domestic Product): GDP is defined by the total $ value of goods and services in a country, typically measured quarterly. This includes exports, government spending, business investments, and our late night online-shopping that no one needs to know about. A declining GDP over about 6 months can be a signal of a recession. (Pro finance tip: you can Google the GDP of your country and look at it over time)
Confidence Indices: Consumer and business anxieties play a big role in recessions because spending and investment are a part economic growth! When buyers and sellers lose confidence in the market (because prices are inflated, profits are threatened, debt grows, and workers aren't making a real living wage), we stop spending - and find ourselves in recession.
So... Where are we?
In Canada right now, we hear a lot of talk about the state of the economy, especially following covid lockdowns where businesses and workers clearly suffered. Global conflict creating high gas prices, a red hot housing market, and the cost of climate catastrophe has also brought our country's economics to the forefront. Let's check in:
Canada's GDP: GDP is assessed every 3 months and changes based on the socio-political state of the country. Right now, Canada's GDP growth seems to be slowing, but so far, we can't definitively call it a recession - although economists are anticipating even more of a slowdown in upcoming months.
Confidence Indices: Canadian consumer and business confidence is declining. Talk of a recession scares consumers into restricting spending and prompts CEOs to halt investments. With all of this anxiety informed by world events, low economic confidence is far from surprising.
What are the experts saying?
Look, we don't know about you but in the spirit of full transparency, we're definitely not experts on these complex economic concepts. If graphs and numbers aren't your thing (and honestly same), this is what the experts are saying:
“The hit to consumers from high inflation and rising rates will weigh on growth over the remainder of this year and into 2023.”
“There are now growing signs the post-COVID comeback will be squandered, like a Game 7 collapse by the Maple Leafs — traded for a needless recession. Most disappointing, the pain will be largely self-inflicted [by the Bank of Canada].”
To combat high inflation, the Bank of Canada has increased interest rates while GDP is slowing down. These factors together can contribute to a recession, because it limits consumer spending so heavily. We're penny pinching hard right now.
Who is left behind?
Recessions disproportionately affect marginalized communities, an issue that often gets overlooked in the midst of all the business and profits focused news. Looking back at the Great Recession of 2008, and the short 2020 recession, we can see how our economic system loves to keep the rich wealthy, make the poor poorer, and uphold white supremacy.
Young & Old: Young people likely don't have much job experience or money saved, and people nearing retirement may have to work longer than expected to make up for money lost - 1 in 5 seniors still work in Canada.
Women: The wage gap contributes to worsen the impacts of a recession on women because overall, we make less money, resulting in less savings to rely on in times of financial hardship. This has even more severe impacts on Women of Colour, who experience higher rates of unemployment, on top of wage gaps.
People of Colour: The burden of recession falls heaviest on BIPOC because unemployment is higher among these groups to begin with due to the systemic barriers that limit their potential for employment to start. Not to mention racial bias in the hiring process and massive income inequality.
Don't freak out, we got this!
As much as recessions suck and as awful it is that we have to take matters into our own hands (rather than having a government and system that has our backs), there are things we can do to lessen the impacts of a recession:
Demand higher wages and job security: the poison pill being swallowed by policymakers to induce a recession can result in higher unemployment while wages haven't kept up with inflation. Organized workers can push back against cuts pushed by businesses and governments!
Demand income support: CERB showed us how we can take care of each other when unemployment rises. We need a CERB like response again from governments if a recession leads to job loss.
Tax the rich: The wealthiest families are protected from many of the negative effects of recessions. If a recession expands inequalities, we need to close the gap with wealth redistribution and programs like a Green New Deal to jump start the economy.
And while we're at it, maybe consider what an economic system other than capitalism would look like....?!?!?
