The fears of the trade war are looming on Canadians and uncertainty continues on the American president Donald Trump Prices, which threaten to upset global trading systems.
While Inflation in Canada Cool slightly in March, fears of a recession remain. A report by the Canadian Federation of Independent Businesses published Thursday (CFIB) provides for “mute growth” of the Canadian economy in the first quarter of 2025 and a “significant contraction” in the second quarter.
A recession is classified as a period of two consecutive quarters in which an economy contracts.
The report suggests that the Canadian economy increased 0.8% in the first quarter, but will contract in the second quarter. References often lead to stagnating economic growth.
The CFIB report also indicated that inflation in the first quarter increased by 2.4%, but will further increase to 2.7%in the second quarter, well above the target range of the Bank of Canada by 2%.
The combination of factors leads to an increase in economists’ warnings on the risk of “stagflation”.
So what is it and why some economists call it “double kiss of death” for an economy?
The term “stagflation” dates back to the 1960s. British politician Ian Macleod is Considered the first public character For having used this term in 1965, a period of economic distress in the United Kingdom.
In other words, it is a mixture of two economic terms.
“It is an invented word. It is a combination of stagnation and inflation, “said Moshe Lander, economist at Concordia University.
Stagflation is a period of time in an economy when economic stagnation or slowdown occurs at the same time as high inflation.
You Nguyen, an economist at RSM Canada, said that Stagflation is a very unusual economic phenomenon because it is the simultaneous presence of two opposite forces.
“As a rule, we see high inflation when there is a lot of economic activity. The economy is therefore a little overheated in the event of stagnation alone,” she said.
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“With a reduced level of economic activity and not as many expenses of consumption or commercial investment, inflation drops. It is a phenomenon that does not happen so often. ”
This means that people going through stagflation in an economy not only undergo the consequences of a recession or a slowdown – such as high unemployment or layoffs – they also pay more for almost everything.
Consumers have reduced spending, they see their purchasing power decrease while businesses reduce hiring or investment. The unemployment rate increases.
“There is a lower demand for goods and services, so companies do not have to hire so many people,” said Nguyen.
Lander said that this double blow is what makes stagflation particularly dangerous for an economy.
“This is the double kiss of death,” he said.
He added that stagflation is very difficult to solve for decision -makers because they usually solve a problem at a time.
“You approach the stagnate song, but you have aggravated inflation,” he said.
Trying to combat inflation, by reducing expenses and increasing interest rates, does not necessarily help.
“The fact is that if the government is retreating and if interest rates increase, it is exactly the type of thing that will save stagnated on the road,” he said.
Has stagflation already occurred?
Lander said that if a regular slowdown generally occurs due to shock on the request, such as people reduces expenditure or the demand for goods such as falling oil, a period of stagflation generally occurs when there is a shock on the supply side.
This could be something of a commercial shock to a world pandemic to a global disruption of the supply chain.
This leads to an increase in input costs, which means that overall prices increase and companies reduce expenses.
“He came to a certain extent during COVID, but the example of a manual which is often used is the oil shock of OPEC in the 1970s, which was a clear example,” he said.
After the 1973 Arab-Israeli war broke out, the organization of oil exporting countries (OPEC) imposed an oil embargo Against the United States and some of its allies. This caused serious oil shortages and pushed the price of oil by 300% in three months.
This also caused an economic crisis in Canada, resulting in high unemployment and high prices.
This has also led to overall higher contribution costs for businesses.
Lander said: “When these contribution costs have increased suddenly and aggressively, companies have reduced their production and what goods have made the shelves increased. Covid was the same thing. How many times have we talked about Covid being the disruptor of the ultimate supply chain? ”
Nguyen said: “At the moment, we are in no way in a period of stagflation, but we expect a significant slowdown in economic activities.”
She added: “Some companies have already started to dismiss workers, others refer to hiring or cancellation of job offers because they provide for a drop in demand. We are planning higher unemployment in the coming months.”
Lander said that the economic conditions created by Trump’s prices are exactly the type of shock of the offer that has led to stagflation in the past.
“What we see with Tariff Talk is that Donald Trump is completely destabilizing what world supply chains were rebuilt after the restrictions have been lifted. This is why the subject (of stagflation) returns in vogue,” he said.
Nguyen said that the chances of a recession in North America “have definitively increased”, but many depends on the duration of tariff pressure and Canada’s response to Trump’s trade war.
“Compared to the United States, the chances of stagflation in Canada are lower, and here is why-the United States has imposed prices on almost all major business partners,” she said.
“Canada did not do this. The only tariff puzzle that the Canadian economy has to face is with the United States ”
But Nguyen said that any slowdown or recession in the United States will send shock waves in the North.
“If the United States has a slowdown period and put significant prices on Canadian exports, a slowdown in Canada is almost inevitable. The inflationary impact here will be less serious because we have no prices on so many business partners, “she said.