Canada: How Your Personal Finances Will Change in 2023

Some are predicting the recession is likely to be mild and short-lived in Canada, as central banks will ease their stance once inflation cools down and growth picks up.

in the long run, 2023 might see a change of fortunes for Canadian finances - Photo by PiggyBank / Unsplash

The year 2022 was a challenging one for many Canadians, as they faced rising inflation, higher interest rates, stock market volatility, and a looming recession. But what does 2023 have in store for your personal finances? Here are some of the trends and tips that could help you navigate the next year.

Short-Lived Recession

According to NerdWallet Canada1, most economists expect a recession to hit Canada in the first half of 2023, triggered by the tightening of monetary policy by the Bank of Canada and the Federal Reserve. However, the recession is likely to be mild and short-lived, as both central banks will ease their stance once inflation cools down and growth picks up. To prepare for a possible recession, you should build up an emergency fund of at least three to six months of living expenses, pay down high-interest debt, and diversify your income sources.

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Downward Trend: Inflation and Interest Rates

Inflation was one of the biggest concerns for Canadians in 2022, as the consumer price index rose by 4.7% year-over-year in November, the highest rate since 2003. The Bank of Canada responded by raising its key interest rate three times in 2022, from 0.25% to 1%, and signaled more hikes to come in 2023. However, NerdWallet Canada1 predicts that inflation will peak in early 2023 and then gradually decline to around 2% by the end of the year, as supply chain disruptions ease and demand moderates. This means that interest rates will also start to level off or even drop later in the year. To cope with inflation and higher interest rates, you should review your budget and spending habits, lock in a fixed-rate mortgage or loan if possible, and invest in assets that can hedge against inflation, such as real estate, commodities, or stocks.

Global Stock Market Volatility

The stock market was a wild ride in 2022, as investors grappled with the uncertainty of the pandemic, inflation, interest rates, geopolitical tensions, and regulatory changes. The S&P/TSX Composite Index ended the year with a modest gain of 6%, while the S&P 500 Index rose by 11%.

However, Ramsey Solutions2 forecasts that the stock market will rebound strongly in 2023, especially in Canada, where the economy is expected to grow by 4.5%, compared to 3.5% for the U.S. The report cites several factors that could boost Canadian stocks, such as strong commodity prices, robust consumer spending, improved vaccination rates, and increased immigration.

To take advantage of the stock market recovery, you should invest regularly and consistently, diversify your portfolio across different sectors and regions, and avoid panic-selling or chasing fads.

Asian Financia Outlook

Asians will face a challenging financial outlook in 2023, as global and regional factors affect their economic growth and stability. According to various sources123, export growth in Asia will reverse in 2023, as the EU enters a recession and the US economy slows sharply.

Domestic demand will also be weak, as interest rates rise and inflation pressures persist. Some countries, such as China and India, will have stronger growth prospects than others, but they will also face risks from policy uncertainty, environmental issues, and in some cases, social unrest.

But if China's economic growth expands in 2023, there are chances that some Asean economies will pick up from where they fell in 2020. And that is good news for the region.

However, to achieve a sustainable and inclusive recovery, Asians will need to invest in green and digital transformation, enhance regional cooperation, and support multilateralism13