Fund Managers Fear Negative Growth: What (Another) Recession Might Mean For You

Where did the money go? This is actually a topic of conversation that's come up in social settings in the past few months, believe it or not. It seems like people used to have a lot more of it than they do today.

With that feeling in mind, it was a little bit jarring to read that some fund managers are trimming their exposure to Canadian banks over fears that Canada could slide into a recession. (I've always been told Canadian banks are a great place to be invested.)

If we're not actually in a recession today, and things feel tight right now (hello groceries! Have you noticed how much walnuts cost lately?), what would things really be like if we were officially found to be in negative growth territory?




Diana Petramala, economist at TD Economics says people feel a recession's effects in their employment prospects first, followed by their wages.

"Right now we have pretty decent labour market activity and unemployment rates are low," she says. "If we were to be tipped into recession, the labour market would probably start to shed jobs, unemployment would increase, and people are going to see downward pressure on their wages. It would be a real constraint to the standard of living if we were to head into a recession."


So What Are The Odds?

At the moment, she says current figures put the threat of a recession occurring in the United States, somewhere between 15 and 20 per cent. "If they were to be tipped into recession, we would probably go into recession with them."

Happily, she says some of the factors which could drive the U.S. in that direction, notably the so-called "fiscal cliff" that is so often mentioned, will likely be headed off or averted before they come to pass. (The fiscal cliff is a set of tax increases and spending cuts, worth about five per cent of U.S. GDP. "We think there will be some increases and cuts, but more likely at a magnitude of 1.5 per cent GDP – enough to keep U.S. growth low, but not enough to send them into recession.")

According to Petramala and TD's quarterly economic forecast, business spending once the fiscal cliff threat resolves itself, is expected to help boost growth to some degree. "Retail sales have been better and demand for autos has been good. As long as those continue to move along at the pace we're seeing, we should see our export optimism start to pick up." Despite signs of stronger retail demand, however, consumers are expected to remain a little more cautious about their spending this Christmas. "Households tend to increase savings and spend less if they're worried about the future."

Five Purchases Canadians Go Into Debt For


The Bank of Canada, meanwhile, is expected to keep interest rates low until the second half of 2013, at which point economists say they expect (or hope) rates will move higher, gradually.

As for the price of walnuts, that higher grocery bill is not a figment of your imagination. Recession or not, food costs are heading higher: Meat prices are roughly six per cent higher today. (Nuts are growing at 13 per cent.)

The price of meat too, still hasn't registered the full effect of this year's growing conditions – higher meat prices generally lag agriculture prices by about six-to-eight months, meaning the full effect will likely be felt by the middle of next year.





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Kate McCaffery is a freelance writer, editor and former urbanite, now living somewhere in between the lake, the ski hill and some farmer's cow path. Visit mccaffery.ca/kate2.0/ for more information.