Much has been said about the dreaded R-word.

It’s the recession, a big downtown in the economy that leads to a lot of terrible things, like people losing their jobs.

Interest rates are rising, inflation is rising, the global economy seems to be shaky, there is a war in Europe, oil prices have risen, so there are fears that a recession is on the way.

But if you asked Scotiabank economists Jean-François Perrault and René Lalonde, it would seem that fears of a severe recession in Canada are overblown.

What is the key here?

“Pent-up demand,” Perrault and Lalonde wrote in a report Monday, July 18.

“Record levels of pent-up demand are expected to keep household consumer spending high despite rising interest rates, low consumer confidence, decades-high inflation and weakening financial markets,” they said. Scotiabank economists said.

“This pent-up demand should prevent the Canadian economy from entering a recession.

They cite as evidence the increase in “discretionary spending categories”.

“This type of spending is typically the first to drop when households watch their spending,” the economists wrote, highlighting food and travel.

Perrault and Lalonde pointed to reports that diners seated in Canadian restaurants “continued to rebound.”

In fact, the number of restaurants was 20% higher than 2019 levels as of July 16 of this year.

“The pace of the rebound has accelerated through all of the Bank of Canada’s rate hikes so far,” Perrault and Lalonde said, referring to interest rate hikes made so far in 2022 by the Bank of Canada.

For travel, they noted a rapid increase this year in air travellers, although volumes from June are still only around 80% of total passengers in 2019.

“Again, these data do not yet suggest an impact from higher interest rates or concerns about the cost of living and are all the more striking given the obvious hassle and frustration associated with traveling from nowadays,” Perrault and Lalonde wrote.

Due to the “historically high level of pent-up demand on the household side”, economists predict that the Canadian economy will grow by 3.5% in 2022.

They expect 1.6% growth in 2023.

“The strength of this pent-up demand likely explains some of the resilience of consumer spending in the face of a very sharp decline in consumer confidence, the loss of purchasing power due to higher inflation and, of course, higher interest costs,” Scotiabank economists said. declared.

However, they do not completely rule out the risks of recession.

Perrault and Lalonde said that a “recession will be avoided, but the risks of recession are significant”.

“Higher inflation coupled with a resurgence of supply chain challenges, weaker stock markets and higher than expected interest rates are potential triggers,” the economists noted.

Moreover, “if a growth recession were to occur, we believe it would be relatively mild given the historical strength of corporate and household balance sheets and the incredible strength of the labor market”.

In other words, “our basic assumption remains that a recession is averted in Canada and the United States, but it is clear that the risks of a recession have increased.”