Canadians face a vibecession, warns Chrystia Freeland

In November 2024, Finance Minister Chrystia Freeland addressed the growing concerns among Canadians regarding the state of the economy, coining the term 'vibecession' to describe the disconnect between objective economic metrics and citizens' perceptions of their well-being. While economists had previously deemed the economy robust—with signs of strong investment, steady growth, and rising wages—Freeland highlighted that Canadians are experiencing an emotional downturn, leading to widespread dissatisfactions similar to trends observed in other developed nations. This sense of gloom, perceived as unjustified by some economic analysts, underscores the complexities in the relationships between inflation, economic indicators, and the political landscape, evidenced by anti-incumbent sentiments during recent elections. Central banks, particularly in Canada, have been slow to adapt to these emotional realities, often focusing solely on numerical measures of inflation while disregarding public sentiment. This divergence has critical implications for policy-making, as decisions that may seem sound financially might not resonate with the populace, who often evaluate their economic situation based on vivid examples from everyday life, such as the skyrocketing prices of essentials. The matter has significant political ramifications, as younger voters are increasingly drawn to populist candidates in response to their economic frustrations, thereby influencing electoral outcomes. Freeland's observations call for a reevaluation of how economists and central banks perceive and react to economic indicators. The suggestion of implementing price-level targeting might offer a way forward, allowing policymakers to build economic strategies more aligned with public experiences and perceptions. The growing popularity of this feedback loop between market dynamics and public sentiment showcases an urgent need for economists to engage in introspection and adapt their approaches to better capture the current economic landscape. The narrative around the 'vibecession' signifies a critical juncture for economic analysis and policy, where understanding human experience becomes essential in shaping effective economic governance. It further amplifies the necessity for a nuanced understanding of how economic realities translate into political choices—and how those choices, in turn, impact the economic framework at large.