Recession to hit Canada in 2023: How you can prepare

Experts are expecting a recession to hit Canada in early 2023, but some say we're already in one. A typical recession lasts about 11 months in Canada, with the most recent recession actually being the shortest in Canadian history – hitting at the start of the coronavirus outbreak in March 2020 and wrapping up in just two months.

Although stimulus helped Canada’s economy quickly bounce back, the country has been plagued with inflation and a general feeling of uncertainty about what's to come since. With record levels of mortgage debt (more than any other G7 nation), it's easy to see why Canadians feel a little nervous about a looming recession. It could be helpful to remember that recessions are an inevitable part of the economic cycle, and there are ways to prepare.

A recession occurs when economic growth slows, and the economy shrinks in response. With companies making fewer sales, people are laid off from work, and a country’s overall economic output declines. It's also next to impossible to know exactly when a recession will hit, how long it will last, and how bad it will get.

Some recessions are generally mild, and the economy quickly recovers. Other recessions are severe, such as the 2008 market crash, which lasted an entire 18 months and wreaked havoc on people’s financial well-being on a global scale. But because recessions are part of a cycle, they have always been followed by economic growth.

There are a number of ways you can prepare for a recession, and doing so could help you feel more in control of your financial situation. Take stock of the realistic ways you could prepare, and create your recession-proof financial plan.

1. Focus on budgeting

If you've never had a budget (or you've never stuck to one), now is a great time to try again – and be sure to keep in mind why it didn’t work the last time. Knowing exactly how you spend your money makes it easier to adjust when times get tough. If you or the people you split expenses with experience a loss in income, the first step is to pay your bills strategically and base the rest of your budget on what's left. Here's exactly how to build a budget.

2. Build an emergency fund

Recessions are a time when layoffs are all too common. In a market downturn, you can hope for the best but plan for the worst by building an emergency fund. This should cover at least 3-6 months' worth of expenses if you're laid off and can cover you while you search for another job. You can open a high-interest savings account and house your emergency fund there.

3. Prioritize paying off high-interest debt

Credit cards are a great way to build credit history and earn rewards, but credit card spending can quickly get out of hand. Swiping your credit card may feel like an easy fix when you're short on cash, but carrying a balance on your credit card every month and only paying the minimum payment can get expensive quickly as your balance grows. If your credit card is routinely maxed out, opt for a balance transfer credit card to help you pay off your debt at a lower interest rate.

If you have student debt, keep making payments if you can, so that you can continue to chip away at the balance. If you're having financial difficulty making payments, see if you qualify for the Government of Canada's Repayment Assistance Plan (RAP). Depending on your income, you could qualify for reduced payments.

4. Expand your side hustle

It's no surprise that Canadians are feeling the sting of inflation, and budgets are being stretched even further. The Globe and Mail reported that 41% of Canadians planned to take up a side hustle, like babysitting, dog walking, or selling items online to earn additional income for 2023.

Time is a precious commodity. But, if you have something you love doing that could potentially bring in some extra income – all the more reason to make more time for it. Whether it's photography, knitting, or freelance writing, you can put your skills to work and make extra cash. Plus, having multiple streams of income is a great way to safeguard against job loss, and you could update your resume with your newfound skills.

5. Keep investing

Whether you're just starting out in the stock market or have been buying stocks for years, you don't have to stop buying because it's a recession. If you're in a good place financially and have extra cash, you could keep investing and adding to your portfolio while stocks are cheaper. If you've chosen safe stocks with good dividends and don’t need the liquidity– stay the course.

6. Keep an eye on your credit score

When things feel stressful, keep in mind that your credit score is a tool that can make your life easier. If something unexpected happens and you need to take out a loan, a good credit score can help you get a low-interest rate. Or, as housing hopefully becomes more affordable in Canada, perhaps it's finally time to enter the real estate market – and you'll want to make sure your credit score is at least 680 to qualify for a mortgage.

You can check your credit score for free with ClearScore, and you'll receive a monthly update letting you know if your credit score is improving.

Nobody wants a recession, and nobody can predict the future. Just like doing your taxes or laundry, recessions are a necessary evil and not a permanent way of life. Take the steps you can to prepare and weather the storm to the best of your ability.

Get your credit score for free with ClearScore and use it to find the right financial products for you. We partner with Canada’s leading lenders to bring you personalized deals on credit cards, loans, and more.

Please note that the above is for informational purposes only and should not be construed as financial advice.