The ongoing trade war between Canada and the United States has many economists warning of turbulent financial times ahead.
Consumer prices could rise and the jobless rate could tick up.
Some economists have even predicted a recession, though Radha Maharaj who is an adjunct finance professor at the University of Toronto explains that recessions are more of a technical term used for when there are two consecutive quarters where there is a decline in GDP.
“A recession is simply when you have six months of negative growth,” Maharaj says.
Whether or not Canada veers into a recession, Jessica Moorhouse, author of “Everything About Money,” notes the economy didn’t plunge to that point even during the sharp downturn in 2020.
“March 11 was our five year anniversary of us being in a pandemic, and it’s interesting because since that time, and that was, I feel, very similar in terms of how people are feeling, the sentiment around the economy, and everyone’s like, ‘We’re going into a recession.’ We did not. There was some complicated times in our economy but we actually rebounded pretty quickly,” Moorhouse told CTV News Toronto in an interview on Friday.
“Economists cry that there’s going to be a recession every single year or we’re headed to another market crash, brace yourselves, and sometimes it happens and sometimes it doesn’t.”
Ninety-five per cent of economists polled by Reuters last week across Canada, Mexico and the United States said recession risks in their economies had risen as a direct result of U.S. President Donald Trump’s tariffs.
So, if there is economic downturn, how can Torontonians protect their finances?
Review your spending
“I always tell people that in a time of financial crisis, or economic crisis, think of it as an opportunity,” Moorhouse said. “Have we taken a look at our numbers and what’s going on in our financial lives or have we kind of let things to the wayside because we had other priorities.”
To do that, Moorhouse recommends combing through your spending over the last three to six months to analyze your habits and see what expenses could be reduced.
“How much do you earn? How much is coming in? How much is going out and (are) things going well or are we spending more than we’re earning? Is there anything left over to put into savings or invest? Are we slowly accruing more debt every single month? We need to make sure that we’ve got a balanced budget and have spending behaviours that match that,” Moorhouse said.
Maharaj says cutting down on unnecessary expenditures, like grabbing a coffee from a café every morning, can really make a difference on the monthly budget as well.
“Everything you do to fortify yourself against a recession, or you try to protect yourself, it all boils down to being disciplined, really, and being consistent,” Maharaj adds.
Build an emergency fund
Canada’s unemployment rate had already been on the rise over the last two years, going from five per cent in March, 2023 to 6.6 per cent last month.
Sault Ste. Marie steelmaker Algoma Steel Group Inc., laid off more than two dozen people after reporting multi-million-dollar losses in its fourth quarter last year, with the company’s CEO saying the levies against aluminum and steel are stoking the flames for further uncertainty to the market.
For those faced with quick unemployment, Maharaj and Moorhouse say it is absolutely crucial to have an emergency fund in place as a safety net for sudden loss of income or unexpected big purchases, like car repairs.
“An emergency fund is the first thing that everyone should prioritize because it will be that saving grace,” Moorhouse said. “We need to have cash and some kind of resource that we can tap into when things do kind of hit the fan—and things typically do—so we want to be prepared for that. That will make you feel a lot more secure.”
The general rule of thumb is having about three to six months worth of typical living expenses saved. If you’re just starting to build that fund, start building it one month at a time—though Moorhouse says it really depends on someone’s comfort level and what’s realistic.
“I’m self employed, so I have about a year (saved) and that’s because I have a little bit more risk compared to maybe an employee who could get laid off,” Moorhouse said. “So, determine what makes you feel good and secure and happy.”
‘Don’t panic’
The U.S. stock market has faced a period of heightened volatility amid Trump’s tariffs with the S&P 500 dropping by more than 10 per cent below a record it sent last month.
While the sudden, stark drop can make any investor sweat, Maharaj and Moorhouse say “don’t panic” and sell off everything in your portfolio.
“The best thing that you can do when it comes to your money is to not let any of your emotions cloud your judgement or dictate your financial decision making,” Moorhouse said, adding that the snap decision now can have greater financial impacts in the long-run.
“If you feel really anxious, use this as an opportunity to take a look at your financial house. Get it more in order.”
To anyone who has not started investing and are in a financial situation to do so, it could be a good time to buy.
“This is a great opportunity to invest for your future because markets are down and that’s a great time to start buying low as opposed to buying high, like most people tend to do,” Moorhouse said.
To crack into the market, Maharaj suggests diversifying your portfolio.
“Perhaps (you) want to get some defensive stocks, some of the basic things, utilities, healthcare, consumer staples, these tend to perform well when things are going chaotic (and in) uncertain times,” Maharaj said. “The things that will not disappear overnight is what you want to be investing in.”
Moorhouse reminds it is never too late to take control of finances, no matter if people are in their 30s or 60s.
Pay off high-interest debt
The debt load of Canadians surpassed the $3 trillion mark for the first time in the final months of 2024, according to Statistics Canada.
Maharaj and Moorhouse said that one of the best things Toronto residents can do to prepare themselves for the uncertainty ahead is look to reduce high-interest consumer debt, like credit card bills and student loans.
“The thing that can really cripple people is having this fixed expenses that’s charging them 20 per cent in interest that they pay every single month,” Moorhouse said, underscoring the importance of creating a plan to pay off that debt as soon as possible.
As soon as that debt is paid off, the accredited financial counselor says cash flow will be freed up to be put toward other accounts, like that emergency fund or savings.
“This is a time for you to be strategic and really develop good financial discipline,” Maharaj said. “If there is a recession, making those payments later on would be much harder for you, especially if they’re layoffs in addition to having to pay this debt.”
With files from CTVNews.ca’s Christl Dabu
