The next time the Bank of Canada (BoC) raises interest rates on the scheduled date of September 7, 2022, it could potentially trigger a recession.
Red-hot inflation has been the story of 2022, and the BoC is stuck between a rock and a hard place - trying to control inflation by raising interest rates, which then runs the high risk of an economic downturn.
Although there may be a chance that we don’t enter into a recession and the BoC is still hoping for a soft landing, it’s best to be prepared.
When many people think of a recession, they may recall the global financial crisis that occurred in 2008, and the ensuing chaos. Recessions aren’t always this dramatic, though, and can vary in severity.
There are many different definitions of what a recession is, but a simple one is given by the National Bureau of Economic Research (NBER):
A recession involves a significant decline in economic activity that is spread across the economy and lasts more than a few months. It can affect several aspects of the economy, such as real GDP, income, industrial production, employment, retail sales, and industrial production.
GDP is an important indicator of where the economy is potentially heading. Current statistics show that Canada’s GDP is very close to stalling and has moved very little recently (0% growth between April 2022 – May 2022).
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