What Manitobans should and shouldn’t do amid recession speculation

In the wake of record-high inflation, ever-increasing interest rates and record-low unemployment, understanding what's going on with the Canadian economy is no easy feat.

Adding to the confusion, while also adding a not insignificant dose of anxiety, is an economic term that's often said but less often understood - recession.

But what is a recession, exactly, and how could one impact the lives of Manitobans?

To use the generally-accepted technical definition, a recession is two consecutive quarters where an economy's gross domestic product, or GDP, shows negative growth. In other words, it's a six-month period in which a country or region's economic output shrinks instead of growing or stagnating.

"Technically, once GDP growth resumes, the recession is over," said University of Manitoba economics professor Fletcher Baragar.

"But in terms of the impact on the way the economy is actually performing, if GDP growth starts to pick back up, but very mildly, then you might say we're still in a recession because we've fallen into this hole and we're a long way from climbing out of it."

RECESSIONS OF MANITOBA’S PAST

Manitobans don't need to think back very far for examples of past recessions. The COVID-19 pandemic caused a short but intense recession in 2020.

Then there was the recession of 2009, caused primarily by the global financial crisis that shook financial institutions the world over only a year earlier.

A better example of a recession that is similar to today's economic conditions, says Baragar, was back in 1981 during a period of extremely high inflation rates. That led the Bank of Canada to raise interest rates, leading to a deep recession for Canada and Manitoba in 1982.

"I think what's happened is, if we do see a recession, it will be a manufactured one," said Baragar.

"The full impact of the aggressive rate hikes have not been felt yet," he said, adding that it can take up to two years for an interest rate increase to work its way through the Canadian economy and lessen consumer demand.

"That's where the fear of a recession comes in," Baragar said. "The impact on demand and growth may be so substantial that, instead of having relatively mild growth, we may see negative growth."

A silver lining to a potential recession, Baragar notes, is a slow-down in inflation rates. That’s the goal of the Bank of Canada's interest rate hikes, which will make goods cheaper for Manitobans in the long-term.

WHAT MANITOBANS SHOULD (AND SHOULDN’T DO) AMID A RECESSION

Still, lower prices don't mean much if you end up losing your job, which is a reality some Manitobans may face in the months ahead.

"All recessions aren't created equal," said Phillip Cyrenne, economist at the University of Winnipeg, noting certain sectors could see job losses while others won't be affected at all.

For example, the public sector tends to be "recession proof," said Cyrenne, which helps stabilize the economy, since it's almost a guarantee a good chunk of people will be employed and spending money.

On the flipside, discretionary sectors, like restaurants or retail, may take a harder hit with employees getting less hours or losing their jobs, as Manitobans reign in spending.

That's where having some savings can help folks through an economic downturn.

"In general, people who are in more precarious sectors should always have a bit more savings than other people," said Cyrenne.

Taking on more debt is also something to be avoided, particularly as interest rates remain high.

If you have investments, Cyrenne advises not reacting to the daily swings of the stock market and selling off assets out of a sense of alarm.

"I wouldn't panic if I was an investor," said Cyrenne. "If we're going to see a recession, it's not going to be like 2020, so there's no sense we're going to have a very serious downturn."

A DIVERSIFIED PROVINCIAL ECONOMY

Better news yet, when looking at more recent recessions, Manitoba has fared pretty well and come out more or less unscathed.

"For the last 20 odd years, Manitoba's economy has tended to be very even," said Chris Ferris, senior economist with Economic Development Winnipeg. "In the last two recessions we've had, we tended to see less of a downturn than the broader Canadian economy."

Ferris points to Manitoba's diversified economy as the primary reason.

A single industry, like manufacturing, food service or construction, doesn't dominate the province's overall economic makeup. Therefore, any dip or spike in growth tends to be less pronounced when compared to Canada as a whole.

"It tends to even itself out over time, unless it's very severe across multiple sectors," Ferris explained. "Manitoba tends to be quite even compared to other provinces."

THE PSYCHOLOGY OF A RECESSION

Recessions, however, don't solely exist in the realm of charts and graphs; there is a real human element to what causes or prolongs an economic downturn. Experts say that's true even if we haven't entered a technical recession.

"If, collectively, we believe we're going to have a recession, we're probably going to have one," said Ferris.

It's essentially a case of self-fulfilling prophecy, he explained, in which a business owner or average Manitoban will pull back on hiring, spending or making investments because they think a recession is looming.

Interest rate increases, a cooling housing market and layoffs from big tech businesses like Microsoft and Google's parent company Alphabet add to this phenomenon, making people believe the economy is heading down a darker path than may be true.

"Right now, the economy is more balancing out ... but if we keep talking recession and everybody believes it, then we could actually go into a recession."

A SENSE OF OPTIMISM AS A RECESSION LOOMS

Whether we see a technical recession in 2023 or not, a slow-down in economic growth is expected this year. The Bank of Canada's latest forecast predicts the country's overall economy to grow by one per cent this year and two per cent in 2024.

Meantime, many small and medium-sized businesses are struggling to deal with existing economic pressures.

"The reality is, once we got out of the pandemic, we thought it was going to be business as usual, but then we got new pressures," said Chuck Davidson, CEO of the Manitoba Chambers of Commerce.

A recent Manitoba business outlook survey found that, while 70 per cent of businesses are now seeing pre-pandemic revenues, a slightly larger percentage say inflation and the increased costs of goods are the largest barriers they see to economic recovery.

There are also signs inflation is getting back down to normal levels and supply chain-related issues are being resolved, creating more access to goods.

"With those coming to an end, it gives businesses a lot of optimism," said Davidson, "We got through COVID. We got through these inflationary pressures, and we’re going to be okay."

A major priority for the Manitoba Chambers of Commerce in the year ahead is making sure businesses have access to a large labour pool.

Economic Development Winnipeg is working towards the same goal and, despite a somewhat rocky start to the year, the organization's CEO Dayna Spiring is actually quite optimistic for 2023.

"Our job is to make sure businesses have the talent they need to grow here," said Spiring. "I think we're in a pretty good position right now, but we'll never take our foot off the gas."

"No question, we're going to see an economic softening," said Spriring. "I'm not as convinced we're going to see a full-blown recession as I may have been six months ago."

Certain sectors of Manitoba's economy may also see major growth this year. Spiring points to the agricultural industry, which could benefit from a scarcity in global cereal crops due to the ongoing war in Ukraine.

"We're also seeing a huge demand in the province's creative industries," said Spiring, adding that increasing connectivity with major media hubs like Los Angeles will be a continued focus for Economic Development Winnipeg in the year ahead.