While Canada’s economy is more resilient than some feared, a recession in Canada is still possible in the next 12 months. During times of economic uncertainty, it’s normal to worry. But there’s less worry now than there was 6 months ago. The Bank of Canada’s Survey of Consumer Expectations—First Quarter of 2023 report showed a mixed outlook. On one hand, some are concerned about:

  • Higher cost of living.
  • Elevated interest rates continuing to constrain spending. 
  • Renewing mortgages and expecting significantly higher payments (and plan to cut spending). 

While others, think the worst is behind them: 

  • Consumer confidence about the economy improved – with expectations of lower inflation. 
  • Many believe the housing market will increase over the next year – due to expected lower interest rates and strong immigration.
  • Workers remain confident about jobs. 

Whether you’re worried or not, it’s important to understand what a recession is, what you can expect – and what you can do to plan for brighter days ahead.

What is a recession?

Economists use various criteria to figure out whether an economy is in recession. The most common is if economic activity, as measured by gross domestic product (GDP),* shrinks for:

  • six months, or
  • two consecutive three-month periods.

During a recession, there’s a rise in unemployment. Fewer jobs mean that people are earning less and spending less money. It also means that businesses are growing at a slower pace or may even be shrinking.

What causes a recession?

There are many factors that can contribute to a decline in GDP, including the following:

  • Higher interest rates, which make it more expensive for businesses to borrow money to fund growth.
  • Lower consumer confidence, caused by negative events (i.e. war, pandemic), which leads consumers to delay spending.
  • Crises in the financial system, such as a drop in the stock market.
  • International trade wars.
  • Government spending cuts.
  • Sudden disruptions in the supply or demand of essential commodities, such as oil, which leads to a drastic increase in their price.

What’s the difference between a recession and a depression?

A depression is more severe than a recession and lasts much longer. It results in lower consumer spending and, compared to a recession, often includes:

  • a higher level of unemployment,
  • a much lower rate of industrial production and
  • a higher rate of business failures (bankruptcies).

Recessions on average last for about 11 months, while a depression can last for several years. For example, the Great Depression of 1929 lasted for three and a half years. But the Great Recession of 2008 lasted about 18 months. 

How does a recession affect you?

A recession can affect people of all income groups. You may have already experienced a job loss related to COVID-19. Or, you may now be earning less money due to inflation. With financial markets suffering losses, you may have also experienced a temporary decline in your investment portfolio.

As a result, you may have difficulty paying your bills or saving money. This may cause you to go into debt to make necessary payments.

During these difficult times, it’s important to remember that recessions are typically short-term and that the economy eventually recovers.

How can you keep your finances on track during a recession?

While you can’t avoid the impact of a recession, you can help protect your finances during one. Here are some tips to help you weather a recession:

1. Use an emergency fund rather than credit

You can’t always predict a financial emergency. But you can prepare for one by having an emergency fund to help you through difficult times.

Do you currently have an emergency fund that can cover some of your living expenses? You can use it to help you through a temporary loss of income. It’s a much better alternative to high-interest credit cards, which will only sink you deeper into debt. When you borrow from your own emergency fund, you have only yourself to pay back.  

If you don’t already have an emergency fund, it’s never too late to start building one. You can build your emergency fund in small steps. First, take a realistic look at your current expenses. Then you can figure out how much you can afford to set aside now. Maybe you can only put away $5 or $10 a week right now. Not to worry: that’s a good start. Simply choose a set amount per week or month that you’re comfortable setting aside. Then have that amount automatically transferred from your chequing account into a savings plan. Remember to review the transfer arrangement regularly and increase the amount whenever you can.

2. Create a budget or review your current budget

Creating a budget is a great way to:

  • figure out where your money’s going right now and
  • make sure it’s going to the right places.

If you already have a budget, now’s a good time to review it.  

Start by making a list of your monthly expenses. Then, ask yourself if there’s anything you don’t need. For example, when reviewing your budget, you may find that you have some unwanted subscriptions you can cancel. You can then redirect some or all of that money to your emergency fund.

Next, ask yourself if there are any living expenses you don’t have to pay right away. Many banks, creditors and mortgage providers offer options to help clients who’ve been financially impacted by COVID-19. Give them a call to see if they offer any support programs or flexible payment options that can help you through this recession.

Need help with your budget? Talk to an advisor for help on how to build a solid budget and stick to it.

Try using our Budget calculator to get a clearer view of what you’re spending and saving now.

3.  Stay invested – even when the stock market goes down

When financial markets decline drastically, you may feel anxious or panicked. You may also feel tempted to sell your investments or make significant changes to your portfolio. But it’s usually best not to act on such emotional impulses.

If you already have a diversified portfolio,* it’s probably best to stay invested. There’s a good reason for staying the course. Historically, financial markets tend to recover from large declines and then go on to produce further gains. This is what happened after the SARS crisis in 2003, the Swine Flu in 2009, the Ebola virus in 2014 and the Zika virus in 2016.1

In addition, staying invested allows you to capture gains as markets recover. If you sell when markets decline, you’re:

  • locking in a loss from selling at a low value and
  • missing out on gains as markets rebound or recover.

4. Get professional help from an advisor

Are you worried about the possible impact of a recession on your savings? Talking to a professional may help to ease your concerns.

Now’s a good time to talk to your advisor if you have one, or to find an advisor if you don't. An advisor can help you:

  • make well-informed financial decisions,
  • find ways to reduce your debt and save more money,
  • create an effective investment plan and build a well-diversified investment portfolio that meets your short- and long-term goals,
  • revise your plan as your financial situation and needs change,
  • provide you with confidence in times of uncertainty, and
  • help you to avoid making poor, emotionally-driven decisions that could hurt your long-term financial goals.


Need help figuring out what’s right for you?

An advisor can help put together a solid plan that suits your goals.

1 Centre for Disease Control; World Health Organization; Bloomberg. Data as of March 4.

*Definition of terms:

Gross domestic product (GDP) is the total value of goods produced and services provided in a country during one year.

Market volatility refers to dramatic swings or ups and downs in the markets.

A diversified portfolio includes various assets like stocks, fixed income, and commodities. These assets may react differently to the same economic event. The value of one may rise while the value of another may fall. This lowers your overall risk because no matter what happens in the market, some assets will still have gains.


This article is for information and illustrative purposes only. It's not intended to provide specific financial, tax, insurance, investment, legal or accounting advice. It does not constitute a specific offer to buy and/or sell securities. We've compiled information in this article and webinar from sources believed to be reliable, but no representation or warranty, express or implied, is made with respect to its timeliness or accuracy.