Is a recession on the way?
BDC's chief economist, Pierre Cléroux, is hopeful there won't be one.
“I believe that, yes, the economy is slowing down and growth is going to be quite close to zero but we’re not expecting a recession,” he said after talking to the local business community at the Timmins Chamber's economic outlook event this week. His talk looked at inflation, the labour shortage and what people can expect in the months ahead.
Even with the economic uncertainty, Northern Ontario is in a position to perform well.
While commodities such as the price of lumber are slowing down, there's good news in the mining sector. It's still going strong, said Cléroux.
"We don’t expect a slowdown in that sector because ... when there’s a slowdown in the economy, gold prices increase, it’s still very high. This will keep going. And also some of the mining projects are related to electric cars and this is a demand that’s still very strong. I think the Northern part of Ontario will continue to perform very well, supported by the mining industry,” he said.
Businesses, he said, should get ready for a slowdown as there won't be the same demand for products and services.
"Over the last two years, the economy has been growing very quickly so there was a lot of demand for everything. The next 12 months are going to be different, going to be flat, so we have to prepare for that.
"For people, it’s a good idea to spend a little bit less and save a little bit more because interest rates are increasing so it’s a good time to save, and in 12 to 18 months, interest rates will go down again so it will be time to spend a bit more. Now, it’s a good time to save money,” he said.
Keep an eye on inflation
Inflation is a key marker to watch.
If inflation goes down — and it should start going down every month, Cléroux predicts — interest rates will stop increasing. If inflation doesn't drop, interest rates will increase more, further increasing the risk of a recession, he said.
Earlier this year, Canada's monthly inflation rate hit 8.1 per cent. It was the highest level in nearly 40 years. While it's down now, Cléroux said it's not down much and that's difficult for a lot of people, especially those on a fixed income and businesses.
Over the next 12 months, he said to expect interest rates to keep increasing.
"The goal is to bring inflation down to two or three per cent. We believe it will have to go to 4.5 for the prime rate probably in the next six months,” he said.
Red flags, and some good news
There are two main factors Cléroux says are increasing the risk of a recession.
If the Bank of Canada increases interest rates too far, it could create a recession. South of the border, while the economy is performing well, interest rates are significantly increasing in the United States.
“That could create a recession in the US and by rebound create a recession here,” he warned.
Should Canada go into a recession, it will be different than the last two.
In 2008-09, he noted there was a global financial crisis. No one had control of the pandemic. We control this one, he said.
“There are more reasons to be optimistic this time,” said Cléroux.
The key positive factors in the Ontario economy are that the unemployment rate is low, and Ontarians have very significant savings worth about $5.5 billion. That means consumers can absorb interest rate increases.
The lack of workers to fill positions has been a challenge for years.
“For the next five years, it’s going to remain difficult to hire people even if immigration is increasing. As a business person, you need to know that. You need to understand that because the way we manage our human resources has to be different than in the past. We don’t have a lot of people anymore,” he said.
With nearly half of Ontario businesses having difficulty recruiting, one of the main impacts is simple. Workers are getting older.
In Canada, 19.1 per cent of people are 65 years or older. Twenty years ago, there were only 12.5 per cent.
That means people are retiring. In October, Cléroux said almost 400,000 Canadians had retired in the last 12 months.
“This is a huge number; it used to be 50- or 60,000,” he said.
With 21.5 per cent of workers in the province being over the age of 55, the problem isn't going away. In the next 10 years, those people will be retiring and the number of people under 25 years in the workforce is much lower than older workers.