Canada’s economy gives, and takes away
Where’s the recession? Like finding Waldo, a lot depends on who’s doing the looking and what they’re looking for.
Since the start of 2015, Canada’s economy has been in a “now-you-see it, now-maybe-you-don’t” recession pattern, with seemingly contradictory data from one week to the next.
Fuelled by the speed and depth of the plunge in oil prices, the country’s overall output — as well as government energy revenue — has been levelled, something few could have foreseen even a year ago.
Sure, North America was hit early on by worse-than-usual winter conditions. The United States also had to deal with the impact of labour disruptions at its major West Coast port facilities. But that was just for starters.
Fanning those headwinds now is uncertainty over the slowdown in China’s economy, coupled with the forever-and-another-day debt crisis in Greece and its possible ripple effect on the rest of Europe.
China’s surprise devaluation of its currency this week “puts further downward pressure on commodity markets, which have been hit hard by weakening global demand and excess supplies,” said Sherry Cooper, chief economist at Dominion Lending Centres.
“Fears of a prolonged decline in demand by the world’s secondlargest economy caused oil and other commodity prices to slump — another blow to the Canadian dollar.”
Already, there are worries that resources-dependent provinces — Alberta, in particular — may already be in recession. Newfoundland and Saskatchewan are also at risk of a downturn. Data for other sectors — such as manufacturing, construction and exports — can routinely disappoint, but sometimes also surprise.
Statistics Canada is the guardian of most of the numbers that paint the picture of the country. That includes monthly gross domestic product, and whether output is rising or declining, and at what pace. Same for inflation, the Bank of Canada’s dominant — and mandated — policy concern, though we rarely hear about it these days.
Interest rates are the central bank’s paramount tool and governor Stephen Poloz has been wielding it since January, when he cut policy-makers’ key lending rate to 0.75 per cent from one per cent — a level previous unchanged since September 2010. Poloz did it again in July, lowering the rate to 0.5 per cent. All bets are off on where and when the next rate adjustment may come. A lot depends on data during the next couple of months, and whether the Federal Reserve — the U.S. central bank — begins hiking its borrowing costs in September, as many anticipate.
A RECESSION OR A HICCUP?
So far this year, Canada has experienced five consecutive months of economic contractions — a firstquarter decline of 0.6 per cent, followed by a 0.1 per cent in April and 0.2 per cent in May. Technically, that puts us only one month from the broad view that two straight quarterly declines equals a recession. All tallied, that would be the worst run since the 2008-09 global downturn.
THINGS GET CLOUDY.
“While I don’t totally rule out this period being a recession, I would still think it’s too early to make that call,” said Douglas Porter, chief economist at BMO Capital Markets in Toronto.
“If the widespread view is that we’re in a recession — even if it’s a mild recession — that could lead to a chill in both consumer and business spending.”
Avery Shenfeld, chief economist at CIBC World Markets, says a recession needs to be “a trend decline in output and employment that entails a significant retreat in broad measures of economic activity.”
“A small dip in GDP that is insufficient to cause job losses would not qualify as a recession. Two consecutive quarters aren’t necessary nor sufficient,” he added.
STILL JOB GROWTH
David Madani, at Capital Economics in Toronto, acknowledges that Canada is probably in a “mild recession” based on a decline in overall economic output — but there has still been job growth.
TWO RELATED SECTORS
Two related sectors — manufacturing and exports — highlight Canada’s see-saw economic data since the last recession, as many companies have been criticized for having “dead money” on their balance sheets and not investing to expand production and widen their markets, relying instead on the weak Canadian dollar to grow.
“You just can’t assume that a low dollar is going to make Canadian products more competitive and build market share in the United States,” said Jayson Myers, president of Canadian Manufacturers & Exporters.
“Unless you have customers buying your products you’re not going to be exporting more. It’s more a reflection, I think, of strengthening U.S. markets.”
Those concerns were in focus on Friday when Statistics Canada reported that manufacturing sales edged up 1.2 per cent in June, well below economists’ forecasts for a 2.7-per-cent increase and still down five per cent from a postrecession peak in July last year.
NOT TO WORRY
Yes, record-high household debt is a worry when and by how much interest rates go back up — putting pressure on borderline borrowers.
On the other hand, we still need consumers to borrow and spend
FRONT LINES
Rhonda Barnet, vice-president of finance at Steelworks Design Inc. in Peterborough, Ont., which designs and builds custom machinery for global customers, has been on the front lines of the manufacturing sector on both sides of the border. “Last year, oil and gas was smoking hot. It was all I could talk about,” she said. Now, the U.S. “is a hot market,” after starting to pick up in and May and June of 2014.
“I am still not convinced that (Canada) is in a full-blown recession. I think it’s a recession in certain industries. So, we should be careful not to paint the whole town with this brush.
“I’m very optimistic about Canada because it is so diverse — oil and gas, mining. They’re big industries but we have lots of big industries. I think, on the whole, the country should do just fine.”