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With inflation driving prices higher all the time, there has been no shortage of money problems and a recession could be coming soon.
That’s according to Jason Childs, an economist with the University of Regina.
He joined Gormley on Thursday to share his thoughts on the future of the Canadian economy, and he has some serious worries.
Higher prices are making life tougher for everyone. While the government tries to control that by raising interest rates, it may have other consequences.
“It’s starting to look more and more like … we’re moving in the direction (of a recession). Part of that is going to come out of the Bank of Canada’s efforts to get inflation back in its target zone,” Childs explained. “Within the next year or two, we could see a pretty dramatic reversal in economic activity.”
He defined a recession as when there are two quarters, or six months, back to back of the GDP shrinking.
A historical example would be the financial crash in 2008, which led to high bankruptcy and made jobs hard to find in many areas.
Another reason Childs sees a recession coming is the amount of debt many Canadians have.
“The problem is, for Canadian consumers, our household debt is more than equal to our GDP, more than equal to the value of everything we create in a year … and that’s just household debt,” he said.
“The average Canadian household would have to work for two years straight just to get out of the hole.”
That leads to less spending, which contributes to a possible recession.
Another possible problem is the possibility of wages going way up.
“That would lock inflation in for a lot longer than it would otherwise. As inflation rises, people see their paycheques going less and less far … There’s more month left at the end of the money,” he said.
From there, people ask for a raise or leave for a higher-paying job, which puts pressure on employers.
“As wages rise, that’s going to put pressure on profit and firms to stay afloat. They need to charge more for the products they produce. So you can get into this wage spiral,” Childs said.
“I think we’re seeing some indications that that might be sparking off, and a recession is one of the ways that wage spiral gets broken.”
