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I might not be the most upbeat economic commentator out there, but I’m generally a pretty optimistic guy. Sure, I might watch for a recession, worry about a recession, even warn about a recession. But no matter what I think the likelihood, I don’t wish for a recession.

Maybe this time I should.

Last week, Manulife Investment Management global chief economist Frances Donald sent out a note to clients in which she argued that between the two likely outcomes of the current slowdown – a mild recession, or a “soft landing” in which the economy sinks into a “prolonged” period of minuscule growth – the former might be the better choice.

“No person [or economist] should ever cheer a recession – people can lose their jobs, their income, their homes,” Ms. Donald clarified in an e-mail conversation. “However, most economic avenues ahead for Canada are difficult, and a mild recession may, counterintuitively, be one of the better outcomes.”

The debate over recession vs. soft landing is heating up as the line separating the two comes into plain sight.

Among economists at Canada’s major banks, the average 2024 gross domestic product growth forecast for Canada is a razor-thin 0.6 per cent; for the United States, it’s 0.8 per cent. From that tepid a pace, it wouldn’t take much at all for both economies to dip into negative territory for two consecutive quarters – the informal yet often-used definition of what people like to call a “technical recession.”

The Bank of Canada’s most recent economic projections, in July, forecast Canadian GDP growth at 1.2 per cent next year; the bank will almost certainly reduce that when it updates its outlook this week.

When Bank of Canada Governor Tiff Macklem talked to reporters from the International Monetary Fund meetings on Oct. 13, he said that “we’re not expecting a recession in Canada,” then added that “we’re not going to be forecasting a serious recession” in the revised outlook. One possible interpretation (though not the only one) is that the new forecasts could, in fact, project a couple of consecutive quarters of mild GDP declines. (Mr. Macklem has consistently argued that such a contraction wouldn’t constitute a recession in any meaningful sense, even if some people would slap the recession tag onto it.)

When it comes to recessions and near-recessions, there’s a knee-jerk tendency among many observers – even well-paid, professional ones – to be scoreboard watchers rather than analysts. Basically, it’s a win if we keep the GDP in growth territory, and a loss if it slips into contraction.

“One of the larger problems with today’s economic discourse is that we imply there are only two worlds – a recession, which is bad, and no recession, which is good. These economic terms mask a much more complicated world with vastly different economic realities for individual Canadians,” Ms. Donald said.

And in the current economic environment, the opposite may be true: The recession may lead to the better outcome.

Consider the two most likely scenarios over the next several quarters: one in which GDP remains in positive territory, but with growth of less than one per cent annualized; and the other in which GDP declines, but not severely. (Ms. Donald has forecast the latter.)

In the first scenario, we may well face an unwelcome combination of a stagnant economy and continued high interest rates. We’d get only mild relief from persistent inflation pressures. Central banks would respond by maintaining higher interest rates for longer, keeping growth in a rut.

“A ‘muddle through’ in which growth is low, but inflation doesn’t fall, continues to squeeze Canadian incomes and costs without rate relief,” Ms. Donald said. “Indeed, without a moderate to more serious pullback in growth, rate cuts remain a pipe dream.”

But the mild-recession scenario would likely hasten rate cuts. Inflation pressures would dissipate more quickly, clearing the path for an easing of rates. Frankly, it would be hard for any central bank to rationalize continued unusually high interest rates in the face of an actual, honest-to-goodness recession.

Those rate cuts, Ms. Donald argues, would fuel “a sizable recovery in growth.” The short-term pain of six months or so of recession could potentially, then, deliver a healthier and robust recovery on the other side.

It’s also notable that, if the economy were to slip into recession today, it would do so from the footing of a remarkably strong labour market. Despite some moderation in recent months, unemployment in both Canada and the United States remains low, and job vacancies are still high. That suggests that employment could weather a recession relatively well, averting a more typical recessionary surge in unemployment that would result in more serious and lasting pain.

There is a danger: Once you fall into recession, there’s no guarantee that it will be easily contained as a mild one. Particularly in Canada, where household debt burdens are easily the highest in the G7, there’s a risk that a true recession, one that included losses in employment, could spiral into a household debt crisis that would quickly turn a recession from mild to severe.

So while there is a good case for the longer-term benefits of a mild recession, we must be careful what we wish for. When you start kicking around Goldilocks scenarios, “just right” can be a tricky thing to pursue. No matter how tasty.

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