BUSINESS

StatsCan GDP Revisions Find Recession Was Deeper Than Thought, But Recent Quarters Were Stronger

10/01/2012 10:57 EDT | Updated 12/01/2012 05:12 EST
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OTTAWA - Canada's economy is stronger than previously believed, but not to the extent that it will significantly influence policy decisions.

That is the key conclusion generated by a two-year project undertaken by Statistics Canada intended to bring how the economy works into sharper focus and update Canada's reporting to comply with new international standards issued in 2008.

The review's most immediate impact is to upgrade Canada's growth in the second quarter of this year by one-tenth of a point to 1.9 per cent, and in the fourth quarter of 2011, by three-tenths of a point to 2.2 per cent.

The economy was also stronger in 2011 as a whole and in 2007 and 2008, the agency said, but weaker than reported in 1999. It also tumbled faster and deeper at the start of the 2008-09 great recession.

The final tally, said the agency, is that Canada's annual growth rate in the last 30 years was 0.14 percentage points higher than previously reported.

Economists were poring over the comprehensive revisions Monday, but the initial take was that while much has changed — including new definitions for categories and the creation of new sub-groups of indicators — the overall effect is fairly marginal.

"The big effort is to make the numbers and concepts more internationally comparable, but I think it carries scant implications for any policy debates," said Derek Holt, vice-president of economics with Scotia Capital.

CIBC chief economist Avery Shenfeld said one possible implication is that the economy's output gap — a measure tracked closely by the Bank of Canada to determine if the economy is back to full capacity — might be said to be closed because of the upward revision to 2011. The new data puts growth at 2.6 per cent last year, not 2.4.

That lifts the economy 4.1 per cent above it's pre-recession level, he said.

But in the end, Shenfeld says applying an economic model shows no "visible change" to the output gap, meaning the economy is still performing below its potential.

"The unemployment rate today is still 7.3 per cent, a level that would be hard to reconcile with a zero output gap measure," he added. "All told then, we don’t expect the new and improved measure of GDP to have any implications for monetary policy."

Among the biggest revision to annual GDP was for 2008. The agency now says the economy grew 1.1 per cent that year, four-tenths of a point higher than previously reported.

As well, the nominal value of the economy, including inflation, was $36.4 billion — or 2.4 per cent — more than under the previous measurement.

But if the economy was stronger going into the great recession of 2008-09, it also fell faster and deeper once the slump hit. The new calculations show it contracted 1.1 per cent in the fourth quarter of 2008, and by 2.2 per cent in the first three months of 2009 — both 0.2 percentage points more than previously calculated.

It all came out in the wash, however, as the 2.8 per cent contraction for all of 2009 was confirmed.

"Overall, in spite of some interesting revisions ... there is not much that changes the broad impression of Canadian economic performance," summarized economist Jimmy Jean of Desjardins Capital Markets.

Delving into the weeds, the revisions will allow economists and policy-makers to more accurately zero in on how specific sectors of the economy are faring, however.

For instance, the new accounting shows that financial corporations, which were separated out from the general business category, are becoming an increasingly significant element of the economy. In 2011, financial firms' gross operating surplus represented 8.3 per cent of the total share, as opposed to 4.9 per cent in 1997.

As well, Statistics Canada removed non-profit institutions and Aboriginal governments from the household income sector to create a truer picture of family finances.

"As a result of these changes, household disposable income in 2007 was lowered by $45.1 billion. Similarly, per capital disposable income was $26,047, down from the previous estimate of $27,420," the agency said.

Household expenditures as a percentage of the overall economy also diminished under the redefinition of the category, to 53 from 56 per cent of GDP for the year 2007.

Canada is one of the first countries to move to the new standards, with the U.S. expected to follow suit next year and Europe in 2014.

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