FIRST READING: Buckle up Canada, the recession has arrived

Article content

First Reading is a daily newsletter keeping you posted on the travails of Canadian politicos, all curated by the National Post’s own Tristin Hopper. To get an early version sent directly to your inbox every Monday to Thursday at 6:30 p.m. ET (and 9 a.m. on Saturdays), sign up here.

TOP STORY

It’s basically unanimous that whatever Canada’s economic foibles right now, they’re almost certainly going to get worse. All the usual suspects within Canadian banking have been forecasting a contraction of the economy since the fall, and some are guessing it’s already happening.

And it’s not just economics PhDs; a recent Leger poll found that 81 per cent of Canadians suspect a recession is coming, and 56 per cent are actively preparing for it. Even Prime Minister Justin Trudeau ditched his usual tack of pretending that everything is going great. “Next year is going to be tough … it’s going to be a tough year,” he said in his year-end interview with Global News.

So what bone-chilling horrors will be brought to bear by the coming economic reckoning? Here’s a sampling of what our best and brightest are saying …

Real estate values are going to keep plunging (obviously)

OK, maybe it isn’t obvious. Canadian real estate is famous for operating well beyond the usual bounds of economic reality. But with Bank of Canada interest rate hikes ensuring that debt is no longer basically free, it’s continuing to have a chilling effect on the willingness of Canadians to throw millions of dollars at anything with a front door. In markets like Toronto, real estate is now officially “crashing.”

Of course, this doesn’t mean that real estate is going to get affordable anytime soon; Canada still has the worst housing shortage in the G7 as well as a latticework of byzantine municipal zoning laws that make densification near-impossible. But at least homes won’t be ridiculously unaffordable for much longer.

Say goodbye to all those “help wanted” signs everywhere

It wouldn’t be a recession without job losses, and this one is expected to feature the usual trends of layoffs and rising unemployment. But the pain is expected to be a lot lighter than usual for the simple reason that this recession will have been immediately preceded by one of the worst labour shortages in living memory.

The same factor forcing New Brunswick McDonalds to offer signing bonuses to line cooks is also what’s going to make employers much more hesitant to hand out walking papers just because times have gotten tough.

Your government’s not going to bail you out this time

Recessions are usually a great excuse for governments to start brazenly throwing money around in an attempt to “stimulate” a lacklustre economy. Heck, even Prime Minister Stephen Harper ran up the national charge card during the 2008 Great Recession, and he wrote his thesis on why stimulus spending was a bad idea.

But none of the previous recessions occurred right after the most prolonged spate of devil-may-care deficit spending in the history of human civilization. Even the most spendthrift governments (Canada included) are starting to realize that they may have dug themselves too deep of a debt hole under COVID. Meanwhile, all that extra spending has been fingered as a prime culprit in sending inflation to generational highs.  

So even the Trudeau government is probably going to resist the temptation to rain stimulus cash on the citizenry. Oxford Economics put it bluntly in their 2023 forecast: “Major fiscal stimulus is not coming.“

Crypto’s gone (and so are NFTs)

It’s no secret that cryptocurrencies have taken a bit of a nose dive in recent months. In a year that hasn’t been great for investors of any kind, even legacy cryptocurrencies such as Bitcoin lost up to 70 per cent of their value in a matter of months.

The same fate befell non-fungible tokens (NFTs), a newly created internet financial product in which you own something (except you don’t really own it). Since October, billions of dollars have been evaporating from NFT valuations.

Both crypto and NFTs appear to have been prime beneficiaries of a unique scenario in which debt was cheap, the economy was top-heavy with cash and many of the usual outlets for spending were closed by COVID restrictions. It turned out to be a perfect storm for investors buying epic quantities of dumb stuff. At a time when fart jars and virtual land sales were all the rage, dropping a few thousand dollars on Doge Coin actually seemed like a sage investment.

Crypto may eventually return, but not in a climate where investors suddenly have to worry about things like “economic fundamentals.”

Which sectors getting hit hardest? Tech, probably

One thing’s for sure: The famously recession-proof liquor and cannabis trades are set to continue adding to the mountains of cash they collected under COVID-19. But if there’s one sector particularly poised for decimation in the coming crunch, it’s probably tech.

For months, companies all across the tech sphere have been announcing mass layoffs. Just this week, Salesforce – a U.S. firm with a heavy presence in Canada – issued pink slips to 10 per cent of its employees.  

Tech has been a particularly eager recipient of the “free money” trend that has dominated the investment sphere until recently: If investors were willing to spend $3 million on a drawing of a monkey, you can absolutely bet that they were willing to shower even middling startups with oceans of venture capital.

The result of this bottomless cash avalanche is that tech companies haven’t necessarily been operating at peak efficiency. One recent sign? Shopify – which briefly reigned during the pandemic as Canada’s most valuable public company – recently sent out a mass-email to its employees reminding them that they actually have to do work sometimes, they can’t just attend meetings and argue about pizza toppings.  

Rent is going to remain unbelievably high 

According to RBC forecasts, over the next 12 months inflation and rising interest rates are forecast to delete about $3,000 worth of purchasing power from the average Canadian household.

Unfortunately, even as those thousands of dollars magically disappear from your income, rent prices are still poised to continue their dizzying upward spiral. Whatever happens to the economy, it probably won’t change the fact that Canada still has a crush of renters chasing an ever-dwindling supply of apartments.

As to why, take your pick: Rental construction has slowed to a crawl in many centres, immigration has never been higher or it’s often been fashionable to blame Airbnb.

IN OTHER NEWS

The Toronto Star had a unique expose about how the Canadian Armed Forces kills roughly 180 pigs per year in training exercises at CFB Suffield, the secretive epicentre of Canadian defence research. The animals are all used as part of medical drills; they’re shot, stabbed or gassed and then handed over to a medic to practice emergency surgery. Although the pigs are sedated for the ordeal, the story notes that most other NATO countries have long abandoned the practice of practicing battlefield medicine on pigs for the simple reason that hogs aren’t a great facsimile of a wounded soldier. To put things in perspective, Canadian per-capita pork consumption is about 35 pounds per year. So over 12 months, 180 hogs probably wouldn’t be enough to supply the various pork dishes at an average Denny’s.   

We try not to mention U.S. politics too much in this newsletter, but the Americans just experienced a bizarre odyssey in which their Congress spent four days engaged in constant failed votes to choose a speaker. Republican Kevin McCarthy ultimately clinched victory early Saturday morning after a 15th ballot. Although the speaker is a more powerful position in the U.S. than in Canada (the U.S. speaker sets policy and is third in line to the presidency, rather than just being a figure who guides debates), our House of Commons would never experience such a bizarre deadlock for the simple reason that the Canadian speaker is chosen via a system of ranked balloting.

Get all of these insights and more into your inbox every weekday at 6 p.m. ET by signing up for the First Reading newsletter here.