The state of Canada's economy and whether a recession is a 'necessary evil'

Like a convertible speeding down the highway, what was a red-hot economy is showing signs of tapping on the breaks.

As pandemic restrictions lifted over the last 12 months, all the pent-up demand for shopping, traveling and overall spending began to spill out — with inflation rising to record levels.

Now, with every passing day, there is more talk about the need for an economic cool-down, which is why a looming recession could be right around the corner.

Finance Minister Chrystia Freeland is already warning of "difficult days ahead" for the economy, while some finance experts suspect there's a 70 per cent chance of a recession and it could happen in early 2023.

All that speculation of a recession sparks painful memories of what many felt in the 1980s and again during the financial crisis about 15 years ago. Those were deep downturns with ripple-effects throughout the country and across businesses big and small.

A recession this time around is not supposed to be nearly as bad, more of a reset or a pause in growth to rein in rampant inflation, supply chain problems, and labour shortages. 

Nobody wants a recession, but experts say it might be the medicine that's needed to get back to what people normally expect when they're looking for a job, buying a home, or planning their household monthly budget. 

There are many ways to judge the health of the economy and where it's headed, so here's a look at some of the key indicators and what they're showing.

At this point, the country's economy is likely no longer growing, but not shrinking either. Instead, it's at an inflection point. A potential calm before the storm clouds roll in.

Unfortunately, the most recent data is from back in July, so it's a bit dated. The economy grew slightly that month, but continued the trend of minimal growth after plenty of momentum during the first half of the year.

Many people are starting to tighten up on how much they spend. Retail spending is up, but that's likely because of inflation. Basically, people aren't buying more, they are just having to pay more for what they purchase.

The latest retail sales figures are for August, which show an increase. Still, economists say retail sales have likely peaked and they see signs that consumers are beginning to pull back on spending in the face of escalating inflation and borrowing costs.

"I'm looking a lot at retail sales," said Charles St-Arnaud, chief economist at Alberta Central, which represents the province's credit unions.

"If we get into a recession, it will come from the consumer side," he said.