Leading economist on how HR leaders can prepare for economic uncertainty in 2023
The inflation rate in Canada is easing slowly; however, the cost-of-living crisis continues to plague organizations and their people. And while many signs suggest we’re past the worst phase, the probability of recession remains elevated, according to a recent report.
Talking with Pedro Antunes, chief economist at the Conference Board of Canada, he believes that if we hit a recession, it’ll be very different compared to what we’ve seen before.
“It’s a unique scenario, especially regarding a potential recession,” he says. “Typically, in a recession, we have some sort of crisis and a lack of confidence that results in a sizeable decline in aggregate demand and economic activity.”
In 2023, it’s different. The labour market in Canada is exceptionally tight, with unemployment continuing to decline across the board – not typical in a recession scenario.
“The Central Bank is working very hard to get us to ease spending,” says Antunes. “So that we realign our demand with our capacity to produce. We’re forecasting a successful monetary policy scenario – higher interest rates result in a mild recession that allows inflationary pressures to ease. I think that’s good news for 2023, even if it does mean fairly weak growth this year.”
But that doesn’t mean we’re out of the woods just yet. While many forecasters are predicting a soft landing, there’s still a lot of risk involved – especially for employers.
“If we aren't successful at fighting inflation off, we could end up with a more challenging scenario. One where central banks are forced to keep the reins tight on monetary policy,” says Antunes.
Employers are concerned about retaining talent when the labour market is so tight while at the same time worrying about the potential effects of a recession on their businesses. Wages are rising in Canada, job vacancies remain high, and unemployment is just slightly above its record low. As inflation continues to erode individual purchasing power, employees are asking for salary increases – something that many Canadian organizations cannot afford.
“Budgets are tight,” says Antunes. “And even though we’re at capacity, employers still struggle to attract and retain talent. So HR professionals are trying to manage both sides of the equation – how to keep our people while at the same time being prudent about what the future holds, specifically around the economic uncertainty and the demand for business products.”
It's been a stressful time for HR departments in Canada. Finally, wages are starting to catch up with inflation, but it’s slow progress, leaving employees looking to jump ship for higher pay and better perks. Something that’s only exasperating the ongoing talent shortage.
Going into the New Year, employers need to be mindful of the economy when it comes to hiring and expenditure.
“Inflationary pressures are easing thanks to tightening monetary policies in Canada and the United States and across Europe,” says Antunes. “But they could easily fire up again due to other issues such as escalation in the war in Ukraine or China’s COVID policies– if inflation doesn’t ease, this could result in a harder landing than we're currently expecting in 2023.”
Antunes advocates prudence regarding wage increases and recruitment.
“We’ve seen temporary wage adjustments for inflation,” he says. “And they're clearly communicated as one-time adjustments, which is wise. So, hopefully, we'll get through this period and see inflationary pressures come down through the course of this year.”
Watch UKG’s 2023 Economic and Labour Market Update webinar to hear more with guest speakers from the Conference Board of Canada.