A recession is a temporary period when there is an overall decline in the economy. The time includes a reduction in industrial and agricultural production, consumer spending, stock markets and levels of employment. The 2008-2009 financial crisis and recession in Canada occurred mainly due to the problems of the housing in the United States. There was a boom in the buying of houses which was fueled by cheap financing and financial deregulation in the country ( Ball, 2018 ). This led to rising interest rates which led to many large financial institutions in the United States to fail. The failure in the businesses led to a lack of confidence in the overall financial institutions causing severe effects on the economy of Canada and other countries. There was a sharp decline in consumer spending and business investment in Canada which took some time to restore. During the 2008-2009 recession in Canada, the GDP declined by 3.3% within three months due to the decline in the exports by up to 16% ( Ball, 2014 ). Other effects included the decrease in the investment by businesses in new buildings and machinery by 22% forcing the government to intervene and bring things back to normal.
Ten years later after the occurrence of the great recession in Canada, the effects can still be seen in certain areas. With the collapse of the Lehman Brothers, over 400000 Canadians lose their jobs, and the impact of this is still evident in the economy of Canada. The bankruptcy and the collapse of Lehman Brothers led to the biggest global financial crisis that still affects not only Canada but also the United States of America. One of the current effects of the recession in Canada is on oil prices. Before the recession, oil price stood at more than $100 per barrel. The decline in the price of oil has also been facilitated by the decline in the value of the Canadian dollar after the recession. The Canadian dollar traded at $1.1 US in 2007 before the recession ( Charnavoki & Dolado, 2014 ). Today, the value of the Canadian currency has dropped against the US dollars up 77 cents, and this affects the foreign trade of Canada. This has not changed despite the government intervention to control the interest rates and the flow of money in the economy. As a result, the oil prices continue to struggle in the market thus affecting the income from export that Canada receives.
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While Canada has recovered in many areas after the recession, a few key areas are still struggling due to the effects of the crisis. The unemployment rate in Canada has hit the lowest rates of 5.8%, the minimum rate ever since the 1970s. Despite the low rates of unemployment in Canada, wages are still very low ( Charnavoki & Dolado, 2014 ). Exactly ten years ago following the collapse of the Lehman Brothers which led to huge financial crisis globally, Canada economy still struggles with low wage rates for its citizens, a factor which still affect the rapid economic development of the country. There is a low-income level amongst the citizens thus limiting their ability to spend and invest.
The Bank of Canada has raised interest rates since it started the hiking cycle in 2017. Currently, the interest rates stand at 1.5%, the lowest rate ever in the history of the country. The struggling with the low-interest rates is still some of the effects that resulted from the 2008 recession. There have been the rising rates of debts both on the government and private institutions to fund their growth after the impact of the recession ( Greenstone, Mas & Nguyen, 2014 ). The effect of this is still visible as many firms still exist with huge debts for them to operate. This lowers the profitability of the firms thus affecting the development of the economy as a whole. Canada still struggles with huge deficits that came when the government borrowed to finance its growth during the recession period. Ten years later, the effects have been rising debts which forces the country to use most of its revenue generated from tax to pay back the debts. The permanent loss of output during the recession could always mean that income from tax is also lost. Many economies usually feel the need to reduce government spending due to the increase in the budget deficit. However, a reduction in government spending could have long-term adverse effects on capital investment and economic development. This is one of the reasons why many nations usually find a lot of difficulties dealing with the issue of recession. The recession made Canada government to increase an unsuitable borrowing which then led to cutting spending and increase taxes to pay off the debts. The effects of this are still present ten years after the crisis.
It has been ten years for the Canadian economy to make a full recovery from the effects of the recession. During the recession, the central bank of Canada cut the interest rates in the move to fix up the mess. As a result, the central bank has been raising interest rates in bits, and until now, the country’s banking system continues to struggle with low interest rates which discourage investment in the banking sector. In their recovery process, policymakers in Canada still struggle to find the right policies that can take the country back to normal. The government still employs cautious methods while running its economy to ensure that everything is brought back to stability.
Canada also witnessed many businesses and private firms close their due to bankruptcy. More than 30000 businesses were closed with many other foreign firms relocating back to their home country. Ten years later, many foreign firms still fear to invest in Canada due to the uncertainties that there could be another financial crisis ( Bansal, Jiang & Jung, 2018 ). Foreign investors play a central role in the development of the economy through the provision of employment and revenue in terms of taxes. But due to the effects that the 2008 recession had on businesses, many foreign firms still fear coming to invest in Canada for fear of the unknown. This has affected not only foreign investors but also the large-scale private investors who are very cautious while investing their money. The resulting outcome is a loss of output and jobs when investors are scared.
In conclusion, a recession can have detrimental effects on the economy of a country that can take many years to recover. Ten years since the 2008 recession, the effects are still evident even though the country has turned to stability. The labor sector is still struggling with low wages and low income which affects the living standards of the citizens. The value of the Canadian currency has remained relatively weaker compared to the U.S. dollar since the occurrence of recession, and this affects the country negatively in the international trade. Also, investment continues to remain relatively low because many foreign investors fear for the unknown. The government also struggles with huge debts, a situation which hinders the development. It can take some more years before the country can completely eliminate the effects of the recession that has taken it a decade to reverse. Policymakers must, therefore, seek to introduce policies that are aimed at promoting stability and cushioning the economy from any possible repeat of the recession in the future.
References
Ball, L. M. (2018). Long-term damage from the Great Recession in OECD countries (No. w20185). National Bureau of Economic Research.
Bansal, P., Jiang, G. F., & Jung, J. C. (2018). Managing responsibly in tough economic times: strategic and tactical CSR during the 2008–2009 global recession. Long Range Planning , 48 (2), 69-79.
Charnavoki, V., & Dolado, J. J. (2014). The effects of global shocks on small commodity-exporting economies: lessons from Canada. American Economic Journal: Macroeconomics , 6 (2), 207-37.
Greenstone, M., Mas, A., & Nguyen, H. L. (2014). Do credit market shocks affect the real economy? Quasi-experimental evidence from the Great Recession and ‘normal’economic times (No. w20704). National Bureau of Economic Research.
