Seasoned economic forecasters have found this to be a tricky period to navigate, 2023, the year of the Humpty Dumpty Economy

BY SIMONE J. SMITH

Is the pandemic over?

Are we in a recession?

According to Pierre Cléroux, Vice President at BDC, Canada is not in a recession. He reveals in his article “2023 Economic Outlook: Cause for Caution, not Alarm,” that despite the bleak outlook in recent months, a recession is still avoidable for the Canadian economy.

Respectfully, I don’t know if I completely agree with Pierre, and not because I am any type of financial guru, but because of the turmoil that we are witnessing in so many different sectors of our global economy. What is even more worrisome is the fact that the economic chaos is happening right next door; with America’s housing market crashing, the cryptocurrency industry imploding, the tech industry laying off workers at an extremely frightening pace, and some of our most important retailers heading into bankruptcy, is it farfetched to say that if your neighbours house has exploded, that your home just might take a hit?

It has become exceedingly clear that the global economy is in huge trouble, and I fully expect that our problems will accelerate even more as the year rolls along. Microsoft announced thousands of job cuts, becoming the latest tech company to pluck its workforce as the global economy slows. Microsoft reported the layoffs would affect roughly 5% of its workforce.

Even more alarming is the fact that a bankruptcy filing for Bed Bath & Beyond has become “likely. Bed Bath & Beyond has been in discussions with prospective buyers and lenders as it works to keep its business afloat during a likely bankruptcy filing.

The wave of layoffs that we have been witnessing in the tech industry is truly unprecedented. Prior to this week, more than 25,000 tech industry workers had already been laid off this year, and this comes on the heels of the massive layoffs in 2022.

Needless to say, this could potentially completely undermine the dominance of the petrodollar. Of course we cannot afford to have that happen, because the dominance of the dollar is one of the only things keeps our systems afloat.

As you can see just about everything is moving in the wrong direction for the U.S. economy, but according to Pierre, Canada’s economy has been resilient. Growth has been sustained by:

• A strong job market
• Household savings
• High commodity prices
• An increase in business investment
• The strong demand for services unleashed after Covid restrictions were lifted

Interestingly enough, it is your household spending that is driving growth in Canada. While consumption is usually responsible for about 60% growth, we estimate that it will account for around 80% of GDP growth in 2022. When we are dealing with any type of economic downturn, you usually tend to spend less and save more, especially if there is job uncertainty.

Higher interest rates have driven down the price of shares and houses, and that trend is expected to continue in 2023. Lower asset prices will negatively impact household spending, and the post-pandemic consumer-spending boom will slow down. These are the reasons that we are seeing a slowdown in spending.

Private sector forecasts in Canada assume there will be some kind of a recession in early 2023, but it will be short and mild. We can’t take for granted that it doesn’t take much to nudge a short and shallow recession into something much worse. In fact, researchers at Oxford Economics believe Canada has already slipped into a recession.

“Canada has likely just entered a moderate recession that will last for much of 2023,” Tony Stillo, Oxford’s director of Canada economics, wrote in a note to clients. “Prevailing household debt and housing imbalances will mix with pandemic and geopolitical forces to make Canada’s recession deeper than most advanced economies.”

Seasoned forecasters have found this a tricky period to navigate, so what does that mean for us? The economy is awash in contradictions and the data are quite noisy. What we do know is that looking ahead, inflation will continue to dominate the economic story of 2023.

If we are not mindful, our entire system will crack and crumble, and the people who are currently running things are not going to be able to put it back together again. Let’s call it 2023, the year of the Humpty Dumpty Economy