Is Canada still flirting with recession? Friday’s GDP report will reveal more
Monday, Jul. 27, 2015
Canada's economy seemed a shovel-full deeper into a downturn in May. Friday's GDP report is going to reveal just how close the economy actually is to retracing the previous recession. Chris Young/The Canadian Press
OTTAWA — Canada’s economy seemed a shovel-full deeper into a downturn in May — and a recession, if only by strict definition.
But we’ll find out just how close the economy actually is to retracing the previous recession of 2008-09 this Friday when Statistics Canada reports gross domestic products.
Many economists are looking for a flat — or slightly negative — reading. There have been four consecutive monthly contractions since the start of 2015. Five months of straight downturns in GDP would be “the longest string of declines since the recession,” said Benjamin Reitzes, senior economist at BMO Capital Markets.
The collapse of global oil prices and harsh winter weather were blamed for an output decline of 0.2 per cent in January. But it was much the same in subsequent months.
There was a 0.1-per-cent drop in February and a negative reading of 0.2 per cent in March — resulting in an overall0.6-per-cent negative reading in the first quarter.
April’s contraction of 0.1 per cent put the economy on a weak leg to start the second quarter. And so far, May has revealed similar weakness.
That leaves just June data, set for release by the federal data agency on Sept. 1, to round out the status of the GDP.
“Our call would put Q2 GDP on track for modestly negative growth, even if June shows a hearty rebound in activity — as suggested by the big rise in hours worked,” Reitzes said.
Other analysts agree.
“The key risk here would be forest fires that we saw in Alberta for the month of May. We likely had disruptions to production, perhaps other knock-on effects to other industries,” said Emanuella Enenajor, North American economist at Bank of America/Merrill Lynch in
That could be viewed as a “temporary aberration,” she added, and activity could resume once the forest fires are in check. “The hope is that, by the time we get to June, we’ll have a positive GDP figure,” she said. “But other factors, including and manufacturing and construction, look at little bit less robust.”
Citi economist Dana Peterson also believes the poor momentum we have seen so far suggests “that real GDP declined by 0.5 per cent annualized in the second quarter.”
The Bank of Canada has been equally cautious when describing the state of the economy.
On July 15, governor Stephen Poloz cut policymakers’ key lending rate to 0.5 per cent — the second 25-basis-point drop in the benchmark this year — as the crunch from oil prices continued to squeeze overall output.
The central bank has also revised its economic outlook, estimating second-quarter GDP will decline 0.5 per cent — compared to a 1.8-per-cent increase expected by policymakers in their April forecast. The third quarter has been adjusted downward as well, to growth of 1.5 per cent from 2.8 per cent, although the final quarter estimate of 2015 is unchanged at 2.5 per cent.
There is some hope, however.
For the entire year, Poloz and his policy team are still looking for growth — if at a reduced rate of 1.1 per cent, compared to 1.9 per cent in its April outlook.
There is also light at the end of the proverbial tunnel coming from the U.S.
Many analysts believe the U.S. economy will see growth of about 2.3 per cent this year, 0.4 basis points lower than previous forecasts but still a bounce back from first-quarter contraction.
“(However) the issue is that this is not a four-per-cent, five-per-cent real GDP recovery. This a three-per-cent real GDP growth recovery for the U.S. And’s just one percentage point away from two — and two would be a disaster,” said Enenajor, at BofA.
“Let’s put into perspective, we’re not looking at a rip-roaring, barn-burning [U.S,] recovery.”