Canada met the technical definition of a recession — two quarters of negative growth — in the first half of this year, numbers from StatsCan confirmed on Tuesday. But many economists are looking at the data and seeing anything but a typical recession.
The optimists — including the economists at the big banks — see signs that Canada is on track to return to growth in the third quarter, thanks to a lower loonie and stronger U.S. economy.
The pessimists believe the fallout from the oil price collapse has yet to work its way through Canada’s economy. Add to that the economic slowdown in China, which will keep commodity prices depressed, and there is pain ahead for Canada, they say.
But there’s one thing many on both sides of the debate agree on: This is a weird recession.
“If this period is ultimately deemed to be a recession, it will be of the mildest variety and one of the strangest recessions ever,” Douglas Porter, chief economist at the Bank of Montreal, wrote in a client note Tuesday.
So why is this such a strange recession? Because despite the fact that manufacturing, construction and oil, gas and mining are all shrinking, so far the recession hasn't really hit Canada where it really hurts — employment.
Albertans would likely disagree, of course: the province has reportedly lost 35,000 oil patch jobs so far. But outside of the oil-dependent parts of Canada, the picture looks brighter.
Overall employment is up by 0.9 per cent in the past year, with 161,000 jobs added, according to StatsCan data. That’s not a stellar performance, but it isn’t recessionary either, and it prompted CIBC economist Avery Shenfeld to declare that this is “not yet an outright recession.”
Even as manufacturing and oil jobs disappear, health care is taking over, accounting for nearly 70,000 new jobs, or almost half of all net jobs created in the country in the past year. The service sector is also booming, with finance/insurance and warehousing/transportation seeing some of the largest increases in jobs.
In that context, economists didn't seem too worried about today's negative economic news.
“There’s nothing new to cheer about, but neither did today’s news provide any reason to add to the booing about Canada’s economy,” Shenfeld wrote in a client note.
Strange recessions are hard to predict, but the big bank economists are sticking to their predictions of a rebound in the third quarter. CIBC’s Shenfeld sees the economy returning to growth in the third quarter, especially given the strong economic performance in June, the latest number for which there is data. The economy grew 0.5 per cent that month, marking the first month this year that Canada’s economy grew.
BMO is calling for a return to pretty much normal economic growth levels in the third quarter, of between 2.5 per cent and 3 per cent growth at an annual rate. That’s more optimistic than the Bank of Canada’s call for 1.5 per cent growth.
But not everyone sees Canada returning quickly to growth, regardless of June’s numbers.
“With exports still struggling and business investment slumping in response to the fallout in the energy sector, hopes for a meaningful rebound beginning in the second half of the year look misplaced,” wrote David Madani of Capital Economics.
He notes consumers have been doing the heavy lifting in Canada’s economy, and he doubts that can go on much longer — presumably because of Canadians’ already very high debt burdens. But given the strong growth in the economy in June, Madani sees some “upside risks” to the economy — meaning he sees the possibility stronger growth than he had previously forecast.
All that is likely to be music to the ears of Conservative Leader Stephen Harper, whose campaign has been working to put the most positive spin possible on Canada's bad economic news story.
Conservative candidate Jason Kenney this week argued for a broader definition of "recession," echoing some economists who say it should be seen as "a widespread downturn in the economy," and shouldn't be measured simply by length of contraction.
But critics pointed out it was the Conservative government itself that defined "recession" in its budget as two quarters of negative growth. For that reason, Parliamentary Budget Office analyst Scott Cameron is calling this a "statutory recession."
With the economy shrinking as jobs grow, economists can add another name to the list: A "strange recession."