Talks about a recession are everywhere these days. Instead of worrying, let's get ready.
In this guide, we'll cover what a recession actually is, what happens when the economy slows down, and simple steps to keep your money safe. A bit of planning now can help you weather tough times later.
What is a recession?
A recession is a temporary economic slump that happens as part of the normal business cycle. It means the economy has shrunk for 6 months (or 2 quarters in a row). When the decline is small, experts call it a "technical recession." Most recessions last between 6 months and a year.
Some warning signs usually show up before a recession hits. An "inverted yield curve" is one of these signals. This happens when short-term bonds pay higher interest than long-term bonds.
For example, if a 2-year Canadian bond pays more than a 10-year bond, that's a warning sign.
Other early signs include:
High inflation
Rising interest rates
More people losing jobs
General uncertainty about the economy
These factors make people nervous about spending money. When people spend less, businesses make less profit. This makes investors nervous too, so they sell stocks. Companies then lay off workers to cut costs, which means those people have less to spend—and the cycle continues.
What causes a recession?
Several things can trigger a recession:
Unexpected events like the COVID-19 pandemic, which shut down many businesses in March 2020
High inflation that makes everything too expensive, forcing people to cut back on spending
Extremely low prices (deflation) that make it hard for companies to profit
High interest rates that make mortgages and loans more expensive
"Bubbles" in markets like housing, where prices rise too high too quickly before suddenly crashing
Is Canada in a recession today?
No. For a recession to happen, our GDP needs to shrink for two quarters in a row. The most recent numbers show Canada's economy actually grew 0.6% in Q4 2024, after growing 0.5% in each of the three quarters before that.
Since the economy is still growing, Canada is not in a recession right now.
What happens in Canada during a recession?
When a recession hits, people spend less money. This forces companies to cut costs.
First, they'll reduce workers' hours. Then they'll freeze hiring. If things get worse, layoffs follow.
People who lose jobs or face higher interest payments will stop buying extras. They'll dip into savings just to cover basics like food and rent.
The Bank of Canada's latest survey shows businesses are already feeling the pinch. Sales are down because inflation and high interest rates have squeezed people's budgets.
Most companies now have enough staff and capacity to handle current demand. They're not planning to hire many new workers. While mass layoffs aren't happening yet, hiring has slowed below normal levels.
Many businesses just want to keep the staff they have for now. The number planning layoffs is about average - not great, but not a crisis either.
How to prepare for a recession
Recessions happen to every economy. But with some planning, you can get through tough times. Here are five steps to help you prepare.
Take stock of your money situation
When times are uncertain, you need to know where you stand. Ask yourself:
How much cash do I have right now?
How much can I access quickly if needed?
How much debt do I have?
What are my basic monthly expenses?
Any big expenses coming up soon?
Try to have enough savings to cover 3-6 months of expenses. If you don't, make that your goal.
Start by tracking your spending. Add up your total income from all sources. Then list your monthly expenses - rent/mortgage, utilities, groceries, medical needs, childcare, and debt payments.
Figure out the minimum you need to get by each month. This is your survival number if you lose your job.
Look for things to cut back on - entertainment, takeout, new clothes. You don't need to eliminate all fun spending, but be honest about what's really essential.
Pay down debt if possible
If money gets tight, you might struggle to pay all your bills. Know which ones matter most:
Pay your rent or mortgage first - keep a roof over your head
Make your car payment if you need it for work
Ask student loan providers about hardship options if needed
Make at least minimum credit card payments
Handle medical bills after other priorities
If you're falling behind, call your creditors. Many will work with you during tough times. And if you need a bit of help between paycheques, KOHO's cash advance can give you access to up to $250 with no interest.
Get a Cash Advance.
Ask about:
Lower interest rates
Interest-only payments
Payment postponements
Your bank, credit union or even employer might offer short-term loans. Utility companies often have assistance programs too. Just ask.
Think about your career
Recessions often mean job losses. Have a backup plan.
Refresh your professional connections - not just at work but across different companies. Good relationships give you an edge in finding new jobs.
Update your resume now, before you need it. Look for gaps in your skills and consider extra training.
Consider picking up side work like freelancing or driving for a rideshare app. Even a small extra income stream helps if you lose your main job.
Build your emergency fund
Put as much cash as possible into a high interest savings account, even if layoffs seem likely. Cut back on extras like takeout and delivery to save more.
Using your emergency fund for a job loss or pay cut is exactly what it's for. But remember to rebuild it when your situation improves.
Stay on top of your finances
Taking steps now will help you through uncertain times. Keep learning about money management and making smart choices. You can handle the challenges ahead - even if they're tough.
Prepare today for a peace of mind tomorrow
Nobody likes thinking about recessions. But a little preparation goes a long way.
The economy moves in cycles - growth followed by slowdowns. It's normal. And while Canada isn't in a recession now, it makes sense to prepare anyway.
Start small. Track your spending. Build some savings. Pay down your highest-interest debts. Update your resume. These simple steps can make a huge difference when times get tough.
Remember, recessions don't last forever. The average one runs about 6-12 months. Having a plan doesn't mean you're expecting the worst - it just means you'll sleep better knowing you've got your bases covered.
The best time to prepare is when things are still good. So take what you've learned here and put it into action. Your future self will thank you.

About the author
Grace is a communications expert with a passion for storytelling. This hobby eventually turned into a career in various roles for banks, marketing agencies, and start-ups. With expertise in the finance industry, Grace has written extensively for many financial services and fintech companies.
Read more about this author