Inflation has been rising in the US for some time now, and it doesn’t look like it will be slowing down anytime soon. This worries economists and business owners alike, as inflation can lead to a recession in other countries.
Canada is particularly at risk, as both economies are closely intertwined.
Therefore, what can be done to prevent a US-backed recession in Canada? How bad could things get if one does occur? In this blog post, you can learn more about how a recession can be triggered in Canada.
How Can Inflation Lead to a Recession?
Inflation can be defined as the increase in the prices of goods and services and the decrease in the purchasing power of people. In addition, price increases can provoke salaries, putting pressure on small business operations.
In extreme cases, inflation can lead to a recession, which can be perceived, in general terms, as a period of economic decline. Thence, what are the primary characteristics of recessions?
First, in the US, a recession can be assumed as a “period of declining economic performance across an entire economy that lasts for several months,” according to Investopedia.
Second, a recession can be recognized as two consecutive quarters of economic decline, reflected in the GPD in conjunction with a rise in unemployment, affecting the labor market.
Nonetheless, the National Bureau of Economic Research (NBER) does not only contemplate the decline of quarters of the economy to identify a recession. For instance, it can consider other variables like business performance, investors’ behaviors, and government actions.
How Can the Us Inflation Lead to a Recession in Canada?
Undoubtedly, an eventual US inflation may lead to a recession in Canada. But what does this means?
It’s important to remember that the Canadian economy is closely linked to the US economy. Therefore, what happens in the US has a direct impact on Canada. So, when the US enters a recession, it usually means that Canada will soon follow suit.
For instance, Matthew Johnston asserts that the first trading partner of Canada is, indeed, the US. In May 2021, Canada’s top goods exports to the US were crude petroleum and cars. A US recession can negatively impact the automobile and energy industries in Canada,
In addition, there is a tendency toward recession not only taking place in the US but also other significant countries, such as the UK, Japan, Korea, and Australia. As a result, economic circumstances in these countries can negatively impact the Canadian economy as well.
“Many major economies will enter recessions over the next 12 months amid tightening government policies and rising living costs, pushing the global economy into a synchronized growth slowdown”, explains Yoshiaki Nohara recalling information provided by Nomura Holdings Inc.
In this video, you can deepen your understanding of the US recession.
How Can You Protect Your Business From a Recession?
Maintain a healthy cash reserve. This will help you weather any downturns in revenue and keep your business afloat.
Review your expenses and cut back where possible. This will help to improve your bottom line and make your business more resilient to economic fluctuations.
Stay focused on your core offerings. During a recession, American small businesses often pivot to new products or services to boost sales. However, this can be risky, as you may spend valuable resources on something that doesn’t pan out.
Instead, focus on what you do best and maintain a laser-like focus on delivering value to your customers.
Stay flexible. In a recessionary environment, businesses need to be agile to adapt to changing conditions. So be prepared to make changes to your plans as circumstances dictate.
Promote well-being among employees by providing them with resources. You can provide your remote employees with resources to improve productivity and efficiency and successfully face an economic downturn.
Get advice from a staffing agency. If you’re particularly concerned about the future of your employees during a recession, you can get advice from a staffing agency.
For example, a staffing agency can provide you with knowledge on how to plan your staffing expenses amid an economic crisis and create recruitment initiatives that help you cut costs.
What can be done to prevent a US-backed recession in Canada? Economists and business owners are worried. However, all is not lost. Canadian business owners must stay up-to-date on the US economy to anticipate actions.
While there is no definite answer as to how to prevent an impending recession in Canada, being proactive and understanding the risks is essential for facing an economic crisis successfully.