It’s a recession when your neighbour loses his job; it’s a depression when you lose yours.
-Harry S. Truman (2015)
This quote from Harry S. Truman, the 33rd president of the United States, might be useful to keep at the back of your head when you think about economics in the new year. It is difficult to find an expert who does not believe there will be an economic recession this year, but it is even more difficult to find an expert who believes its effect will be more than “mild.”
In the World Bank’s January 2023 “Global Economic Prospects Report,” its researchers suggest, “Global growth has slowed to the extent that the global economy is perilously close to falling into recession,” which is predicted to impact every region of the world to some extent (Q.ai 2023). If there is an economic downturn, it will be attributed to the increasing interest rates from central banks, which was their response to the soaring inflation we witnessed last year.
Since most of us are not trained economists, this bleak prediction causes us to ask a myriad of questions. However, our most concerning question as Redeemer students is, “What does this all mean for students of a private university in Canada?” or “Why should I care?”
No expert or professional can answer these questions with 100% confidence because the economy has lately been peculiar and unpredictable. Nevertheless, it may be helpful for us university students to be aware of the economic implications of our situation so that we can prepare for a potentially uncertain future.
The incipient recession this year is no doubt a serious matter. For most of us, it will affect how we manage our finances and decrease our confidence in searching for jobs or making money off of investments. One problem standing in the way of understanding this, however, is that we cannot get past the academic jargon of economists to understand how the global recession will affect our situation. This article will avoid such phraseology and answer the important questions that matter for our context.
What is a recession?
Traditionally, a recession is defined as an economic condition where there is negative growth in real GDP (Gross Domestic Product—value of goods and services in a given nation). In other words, a recession is a decline in economic activity on a large scale. When a recession hits, unemployment rises, and consumer spending falls. The precise timing of this recession is disputed because the calculation of total GDP usually takes months. So, curiously enough, we could already be in it.
Redeemer’s own politics professor Dr. Robert Joustra (who teaches a second-year course on international political economy), suggested that the World Bank’s prediction brings both good news and bad news to students. One area where the recession affects our situation is job searching after graduation. Typically, an economic recession is defined by high unemployment, and in this year’s case, experts say that we should expect more firing and less hiring so that companies can survive through the tough financial conditions.
How will this affect my search for a house and a job?
On the one hand, this recession looks bad for soon-to-be graduates looking for a house. As Joustra said, “the rates of borrowing are very high, and while it has had some effect on housing, prices still remain out of reach for most first-time buyers.”
Additionally, after the tech industry binged on hiring during the pandemic, Joustra says we are in what he calls the “great tech-pocalypse.” “There have been massive layoffs in the tech sector [such as Amazon and Facebook],” said Joustra. We might also witness layoffs in other white-collar jobs, including financial and media services. These are scary prospects for any aspiring worker in these industries.
On the other hand, if you hold a Bachelor’s degree and you are graduating in 2023, you have less reason to fear. Joustra noted, “The bargaining chip for employees is that there are increasingly fewer of them. Perks like working from home are more common, and we have a new opportunity in front of students to be a little less anxious about employability.”
Employment researcher Matt Darling recently wrote, “If we do see a recession, it will be bad for lots of folks, but I would expect the unemployment rate for people with college [degrees] to get up to five percent and people with high school, no college, up to ten percent” (Stewart 2023).
Holding a university degree and the expansion of hybrid work are two things that work in our favour as we head into a recessionary gap. Even for those looking for a house in Hamilton, the recession could possibly reduce property value.
How should I spend my money?
Students may need to consider another economic condition: consumer spending. A recession drives down affordability for some products, so consumers will often be more cautious and limited in their spending power. However, Randall Bartlett, senior director of Canadian economics at Desjardins, maintained that if Canadians already start practicing this cautious behaviour, it will drive down business and the recession will come closer than we anticipated (Lord 2023). In other words, it might be wise to act like there is no recession, even if there is one.
On a macro level, Canadians have a case for optimism because our country has a strong dollar, which is better for economies heading into a recession. Also, the injection of COVID-19 stimulus has allowed houses to build up their savings, giving them a good financial standing ahead of the recession.
A Loss of Trust?
Another thing that makes the 2023 recession more challenging than before is Canada’s lack of trust in its own leader. According to a recent research study by Mario Canseco, 41% of Canadians have confidence that Prime Minister Justin Trudeau will “do the right thing to help the economy” (Canseco 2023). This lack of trust comes from Trudeau’s budget deficits and his failed experiment with Modern Monetary Theory—a government policy of printing money to recover from a recession. After this attempt, Trudeau’s opponents have insisted that he is culpable for Canada’s high inflation. Nevertheless, the Bank of Canada is at the wheel of interest rates, not the Prime Minister, and the inflation we are experiencing is primarily the result of the war in Ukraine.
Our skepticism of our own leaders should not lead us to disregard the value of governments in a global recession. To paraphrase a quote from the German philosopher Hegel, what history teaches us is that people have never learned anything from history (Sanghi 2019). And what economic history of the last century teaches us is that global institutions are essential to economic recovery. The recent trend of populist distrust of elite international organizations makes it challenging to understand their importance. However, inter-state cooperation through systems like the International Monetary Fund and the World Bank was key to preventing the 2008 recession from turning into a depression.
All in all, most economists agree that the recession will arrive, but its arrival will deliver minimal impact, not to the point where it will disrupt our learning at Redeemer. Despite the effects of unemployment in the midst of a recession, students of Redeemer working hard to receive their degree will be able to secure a spot in the labour force, giving them more reason to calm down than panic. To borrow an iconic quote from Redeemer’s Dr. Asatryan, “The odds are always in your favour.”
If you want more information about this recession, the most reliable sources are the Bank of Canada website, the Conference Board of Canada, Export Development Canada, and the Ministry of Finance.