05/24/2017 12:24 EDT | Updated 05/24/2017 12:24 EDT

We Can't Predict Canada's Next Recession, But We Can Prepare For It

A couple of years after the financial crisis, I asked one of our executives how Canada had managed to sidestep the deep pain felt in the U.S. "I'm not sure we did," he pushed back. "Maybe it just hasn't happened yet."

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(Photo: Nicolas McComber via Getty Images)

Fast forward to 2017 and here we are, fretting over housing bubbles and record-high debt levels.

These stories remind us that cycles don't last forever. Economies grow; they run out of steam and then invariably a recession follows. Activity falls for two or more consecutive quarters, people lose their jobs until eventually growth starts again.

According to data published by the C.D. Howe Institute, Canada has experienced 12 recessions since the stock market crash of 1929. They ran:


The longest period of economic expansion during that time was more than 16 years. Put a big asterisk beside that one, though. Ottawa signed the U.S.-Canada Free Trade Agreement in 1988, followed by the North American Free Trade Agreement in 1993. That boom in cross-border commerce overlapped with a period in which Canadian baby boomers charged though their peak spending years. No wonder we enjoyed such a long period of uninterrupted growth.

Even when those boom years are included, the average length of Canada's economic expansions since 1929 is six years and three months.

By contrast, we're now nine years into an economic expansion powered by historically low interest rates. Low borrowing costs helped us out of the crisis. But they have also driven us deeper into debt. Household credit market debt hit a stunning 167.3 per cent of adjusted household disposable income in the last three months of 2016, according to Statistics Canada. Meanwhile baby boomers have raised their families and have stopped shopping like it's 1999.

That will eventually drive mortgage rates higher here.

We can't know for sure when the next recession will start. Economists expect the U.S. Federal Reserve to continue raising that country's overnight rate, based on its belief that the economy is strong enough to withstand higher borrowing costs. It will move slowly, but that will eventually drive mortgage rates higher here.

In a clear indication of how brittle our domestic economy is, the Bank of Canada remains in a holding pattern on interest rates.

Five steps you can take to prepare for the next downturn:

Pay off consumer debt

Cut your spending as best you can, and pay down debt. Prioritize credit cards that charge the highest interest rates.

Build an emergency fund

Once your most expensive debt is under control, start saving more. How old is your car? How about major appliances? Is job loss a possibility? Depending on how advanced you are in your career, unemployment could last a month, a year or more. Estimate what you might need. But don't overthink it. Any size emergency fund is better than nothing. Talk to your financial advisor about a tax-free savings account, a high-interest savings account or other options that will earn you interest.


Freshen up your resume and get yourself in circulation. Now is the time to catch up with colleagues and build new relationships.

Start something new

Side gigs aren't just for millennials. And they don't have to have anything to do with what you spend Monday to Friday working on.

Go back to school

When things get tight, the best investment is often the one you make in yourself.

Kevin Press is assistant vice-president, market insights at Sun Life Financial.

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