WATCH ABOVE: The numbers from Statistics Canada are in and the picture they paint is bleak — Canada is in a recession. Eric Sorensen reports on how we got here.
OTTAWA – Statistics Canada figures released Tuesday morning show that the Canadian economy is in recession, going by the definition of two straight quarters of GDP decline. Only just barely though – the economy shrank by about 0.5 per cent in the second quarter, and actually grew a little in June.
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Half a per cent is a small decline, and the last time Canada experienced a recession, there was nothing small about it.
“What we saw in 2008 and 2009 was a very deep, serious recession that pretty much took the whole economy down with it, whether it was employment, consumer spending, business investment, exports, almost every sector was hit hard. Almost every region of the country was hit hard. And it was going on around the world,” said Doug Porter, chief economist at BMO Financial Group.
It showed in the magnitude of the GDP slump too: between the last quarter of 2008 and the first quarter of 2009, GDP dropped by nearly nine per cent at an annual rate, putting this year’s decline to shame.
“Normally to fully qualify as a recession you would have declines in employment as well, serious declines in employment,” said Porter. “Yes we had a small decline in output in the first six months of the year but it did not translate into a pullback in employment. Employment wasn’t great but we did see job gains in the first half of the year and that’s not normal in a recession.”
Unemployment rates this year have generally held steady, unlike in 2008 and 2009.
The U.S. economy is another source of optimism for Porter. While its decline in 2008 hurt Canada, “one of the main reasons why I’m not overly concerned about the outlook at this point is because the U.S. economy is chugging along,” he said.
“The U.S. economy grew at a better than 3 per cent annual rate in the second quarter and it looks like it’s on course for reasonable growth in the second half of the year and I think ultimately that will help a number of sectors in the Canadian economy.”
He expects Canada’s economy to grow too in the second half of the year, though only a little. “We think the third quarter will be okay. We think it will grow by about two and a half to three per cent. And we see something close to two per cent in the fourth quarter.”
“So overall we think the economy will likely post modest growth through the second half of the year. Nothing great admittedly, we’re not going to see a full bounce back from the weakness in the first half of the year but it will be an improvement, we suspect.”
If things don’t improve though, it could merit a policy response, thinks Porter.
“I think if it deepens further, if we have another setback in the next few quarters, I think there would be a case to be made for the Bank of Canada to cut rates yet again and I think there would be a case to be made for the government, whoever is in power, to consider ways to help support the economy, whether it’s through tax cuts or infrastructure spending.”
For now, economists will wait and see.
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