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Published December 7, 2022

6 Financial Trends That Could Shape 2023: Recession, Housing, Crypto and More

Persistent inflation and a minor recession are expected in 2023, but so is increased stability in the housing and stock markets. Start preparing your finances now and you could take advantage of the uncertainty.

After a pandemic-addled two years that left the economy and personal finances discombobulated, 2022 was supposed to be the year that everything returned to normal. 

But heading into 2023, Canadians are still hip-deep in uncertainty: decades-high inflation, the housing and stock markets both in the dumps and a cloud on the horizon that looks an awful lot like a recession. Next year has to be easier, right?

Right?

No one can predict what’s in store for the Canadian economy in 2023, but having a general idea of what’s coming can help you prepare. If you can gird your finances for a little more turmoil at the outset of the year, the relative calm we expect to follow should be even sweeter.

1. Recession is coming, though it will be mild and short-lived

Shannon Terrell: As far as a Canadian recession is concerned, it’s not so much a question of if, but of when. In the wake of numerous Bank of Canada rate hikes, a moderate recession next year is expected. Perhaps more important is whether 2023’s forecasted downturn will cripple the Canadian economy. Most analysts say no. Here’s why.

Right now, the Canadian job market is strong. Our labour market grew by 108,000 positions in October, and unemployment held steady at 5.2%. These are good numbers — promising numbers. And Canada’s job market is really the linchpin of our recession resilience. We could see unemployment rise as high as 6.5% in 2023, but truth be told, we’re well-positioned to navigate a moderate economic downturn. 

As for timing, analysts from RBC and Scotiabank think Canada will enter a recession within the first three months of 2023. By midyear, we can expect to see some turnaround in the economy.  

How to handle it: Consider starting (or beefing up) an emergency fund. Having some money tucked away in case of job loss or rising expenses can provide much-needed peace of mind. You may also want to assess your debt, specifically: debt with variable interest rates. In the event of economic turbulence, variable-rate debt is akin to throwing an unpredictable (and expensive) wrench into your finances. Prioritize paying down high-interest and variable-rate debt to prepare for economic uncertainty. 

2. Inflation and interest rates will come down — eventually

Clay Jarvis: The Bank of Canada said in its most recent Monetary Policy Report that it expects inflation to fall to “about 3%” in late 2023. That would mean lower prices on essentials for consumers and lower interest rates for borrowers, particularly those seeking variable-rate mortgages. 

I’m skeptical that the Bank of Canada’s rate hikes will bring inflation down that quickly. The Bank increased the overnight rate seven times in 2022, from 0.25% to 4.25%, and inflation is still running hot. It’s down from a July peak of 8.1%, but inflation was still an eye-watering 6.9% in October, and has been in that general range since August.

Fuelled by non-economic factors this time around, like the invasion of Ukraine and COVID lockdowns in China, it’s fair to wonder if a purely economic response like raising interest rates will be enough to tame inflation by year-end. I don’t think so, but if inflation begins receding in the early part of 2023, it’ll give the Bank a reason to pause its rate increases and consider reducing the overnight rate — by a minimal amount — by late-2023.

How to handle it: High interest rates on savings accounts and term deposits aren’t likely to last through the end of 2023, so take advantage while you can. Guaranteed investment certificates, for example, are worth a look in a high-rate environment.

3. Stock market volatility will give way to substantial growth — at least in Canada

Shannon Terrell: It’s no secret that 2022 wasn’t been the best year for investors. Year-to-date, all the major stock indices in Canada and the US are down. In fact, many are poised to ring in the new year with less value than they had at its outset. Markets have been volatile, with yo-yo-ing stock prices exacerbated by white-hot inflation and aggressive interest rate hikes from central banks. 

The good news? Things look bullish for investors next year — at least in Canada. Numerous analysts suggest US markets will continue their volatile ride into 2023, but predictions for Canadian markets are optimistic. So optimistic, in fact, that some strategists suggest the Toronto Stock Exchange will hit a record peak in 2023 in response to elevated prices for commodities and energy products.

Now, don’t get me wrong — we will likely still see some volatility, especially in the face of a potential recession. But what’s important to remember is that Canada’s benchmark index, the S&P/TSX composite, is more heavily weighted towards the financial and energy sectors than the S&P 500. This will give the Canadian market an edge over its American counterpart in 2023.

How to handle it: No matter how the market pivots, there’s little to be gained from panic selling. Most investors are in it for the long haul anyway, so if you consider yourself a buy-and-hold investor, make sure you feel comfortable riding out the natural highs and lows of the market. You may see some of your investments lose money, but selling when the market is down only locks in your losses. The portfolio best positioned to weather volatility is a diversified one. 

4. The Canadian housing market will stabilize

Clay Jarvis: Don’t let the collapse in sales seen in the latter half of 2022 fool you: The Canadian real estate market will be just fine in 2023. 

Buyers will likely be dealing with prohibitively high mortgage rates for the first half or two-thirds of 2023, but once rates start ticking down and buying power begins increasing, I think you’ll see an immediate rebound in sales and prices. The size of those rebounds will be determined by how much buyers are able to borrow.

After a projected drop of 20% in 2022, the Canadian Real Estate Association expects sales to decline by just 2.3% in 2023. That’s not a change that will show up in prices, which is why CREA is projecting a minuscule increase of 0.2% for the national average sale price next year. 

Those numbers sound about right to me. The first several months of 2023 should be similar to what we saw in late 2022, and slumping sales will probably offset whatever gains the market experiences later in the year. Don’t forget that Canada will be welcoming around 465,000 new arrivals next year; those in a position to buy will put more upward pressure on prices and sales.

How to handle it: If you’re not in a position to buy a home now, your situation may not improve much for the next several months. Use that time to shore up your finances — pay down some debt, shift your down payment savings into a high-interest savings account or GIC — and hit the ground running when the market becomes more welcoming.

5. More businesses will introduce Canada’s new credit card fee

Shannon Terrell: In October, Canadian business owners were given the option to pass credit card processing fees of up to 2.4% on to their customers. These processing fees cover the costs of using credit card networks and, until now, were paid by merchants. But here’s the thing: only 19% of small businesses said they planned to charge the fee, according to a September 2022 survey conducted by the Canadian Federation of Independent Businesses.

That means over 80% of small businesses surveyed said they didn’t plan to implement the fee — at least, not yet. Why the hesitation? I think Canadian business owners got cold feet ahead of the holiday rush. 

The end of the year is often a make-or-break time for many businesses. Do you risk losing customers during a critical profit-making window? Probably not. 

I suspect we’ll see wider adoption of processing fees in 2023. But we may also see a rise in alternative forms of payment that bypass the fee, like “buy now, pay later” installment loans and Interac e-Transfers. One example is Clik2pay, a payments service that lets businesses accept customer payments in person and online via Interac e-Transfer. In the new year, I expect we’ll see more of these alternative payment options gain traction — alongside credit card processing fees.

How to handle it: Business owners, don’t be afraid to explore alternative forms of payment processing to appeal to a broader range of clientele. Consumers, learn how to spot processing fees before you commit to a purchase and take time to comparison shop. It may also pay to have alternative forms of payment on hand, like cash.

6. Crypto will remain on the fringes of the financial system

Clay Jarvis: Rather than play the role of disruptor, cryptocurrency disrupted itself in 2022. The losses that wallopped Bitcoin, Ether, and many other tokens magnified the sector’s inherent unpredictability. The multibillion-dollar collapse of cryptocurrency exchange FTX in November exposed the corruption and mismanagement at the heart of one of the space’s formerly biggest players. 

While blockchain is being more widely implemented, and Canadian financial institutions are experimenting with their own digital currencies, the cryptocurrency many investors are familiar with — speculative digital assets with a value of…what exactly? — will remain a fringe asset in 2023.

There’s just not enough regulation around crypto to warrant an imminent, open-arms welcome from Canada’s conservative banking system. Fraud remains an issue, as do sudden, inexplicable price crashes. Those risks are amplified by the fact that crypto assets are not eligible for deposit insurance in Canada. Cryptocurrencies were also recently identified as both “targets and tools” of cyber criminals by the Canadian Centre for Cyber Security.

I doubt that those issues will be resolved in 2023, but it could still be a big year for the crypto industry. The federal government recently announced that it is consulting with stakeholders on digital currencies, including cryptocurrencies, which is an acknowledgement that crypto could be here to stay — once the kinks are ironed out. That kind of positive momentum should be music to investors’ ears.

How to handle it: No matter what crypto asset you consider investing in — a coin, stock in a promising blockchain company — doing your homework is more important than ever. In addition to vetting the investment itself, make sure you can retrieve your assets from wherever you store or trade them in the event of a meltdown.

About the Authors

Clay Jarvis

Clay Jarvis is NerdWallet’s mortgage and real estate expert in Canada. Thus far, his entire professional writing career has revolved around real estate. Prior to joining NerdWallet, he was the editor and senior writer for four publications, including the leading website for the country’s mortgage industry, Mortgage Broker News. Clay has written 30,000-word examinations of Canada’s real estate investment market, interviewed the industry’s most powerful leaders and analysts, and has helped choose both the nation’s top realtors and mortgage brokers. He is based in Toronto, Ontario.

Shannon Terrell

Shannon Terrell is a lead writer and spokesperson for NerdWallet, where she writes about a variety of personal finance topics. Previously, she was a writer, editor and video host for financial comparison company, Finder. Shannon has appeared as a financial expert on CP24 and has been quoted in numerous publications, including Yahoo! Finance and Black Enterprise. She holds a bachelor’s degree in communications and English literature from the University of Toronto Mississauga. She’s also a published author whose work has been featured in academic journals from the University of Toronto. Shannon is based in Brampton, Ontario.

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