Canada in Recession

A Recession, But With Optimism

Canada in Recession
September 15, 2015

The Canadian economy is technically in a recession with two consecutive quarters of contracting GDP. However, the recession does not seem to be bothering most Canadian economists — or, for that matter, most Canadians. The sentiment was best summed up by a quote from Doug Porter, Chief Economist at the Bank of Montreal. "Best. Recession. Ever."

Why would a recession be treated in such a cavalier fashion? It appears to be atypical in several ways. Canadians have good reason for optimism based on other economic aspects.

First, the GDP contractions are quite small. First quarter GDP was revised downward to a 0.2% loss from a 0.1% loss, and the first estimate of the second quarter GDP also came in at a 0.1% loss (0.8% and 0.6% annualized respectively). Given the slump in oil prices and the energy industry, it's surprising the damage was not greater. The energy sector accounted for just under 28% of Canada's 2014 GDP in goods-producing industries, according to Statistics Canada (Statscan).

Further, while the previous five monthly GDP values showed contraction, the June reading produced a growth of 0.5%. Growth was broad-based and headed by the problematic oil industry, which posted its first gain in over seven months.

Other economic indicators defy the typical recession. Jobs are being created at a healthy pace, and consumer spending is still robust.

According to economists at Scotiabank, since oil and commodity prices began to crash in June 2014, the Canadian economy has actually added over 180,000 jobs. Statscan reported that 54,000 jobs were added in August even though the unemployment rate rose to 7.0%. Even that development was interpreted as good news, because the rise is due to more unemployed Canadians re-entering the workforce and raising the labor participation rate — a problem that the US has found difficult to shake.

In the words of CIBC Chief Economist Avery Shenfeld, "Sometimes a rise in the unemployment rate is actually something to cheer about." You have to love the Canadian attitude. Perhaps we can import some of their optimism to the US?

Meanwhile, consumer spending fueled by housing and big-ticket item sales were great enough that the economy would have grown in the second quarter if the energy sector were excluded.

The Bank of Canada expects the Canadian economy to grow slowly its way out of the recession, with 1.5% GDP growth in the third quarter and 2.5% in the fourth quarter. Given that oil prices probably will not recover during that time and the world economy is not looking much better, it is hard to foresee a faster growth rate.

Fortunately, the US economy is continuing to grow (despite the volatile stock market) and Canadian businesses are likely to prosper from that growth. US exports from Canada totaled $312.4 billion in 2014, and are on a higher growth pace for the first half of 2015.

One true downside of the recession that is being glossed over is the amount of debt. The Canadian savings rate has dropped to 4% from 5.2% at the beginning of 2015, and the rate of total debts of Canadians rose 4.9% in June, the highest year-over-year debt increase in over two years. Canadians seem to have concluded that the recession is a temporary oil-induced drop and will simply dip into savings to get by in the interim.

A recession with optimism... what a novel concept! And here we are in the US, continually edgy and nervous because of slow steady growth. Maybe it really is time to add some Canadian optimism to our import list.

Photo © LaraBelova

  Conversation   |   29 Comments

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Daniel | 09.15.15 @ 14:46
Sometimes I think the word recession is thrown around too much, though it may be the actual case there is one. It is also way to often used by media.
Britt | 09.15.15 @ 14:48
With the way things are going with many countries in the world and their economic status, it really wouldn't surprise me.
Steffanie | 09.15.15 @ 14:52
I feel many countries are headed this way.
Erin | 09.15.15 @ 14:52
I'm all for importing some optimism. It's tiring to hear the constant doom-and-gloom and fear-mongering from the talking heads.
Ron | 09.15.15 @ 14:53
The focus on annual growth seems a bit overstated and moreso every year. We do keep on consuming and reproducing until we do break into Methuselah's Theory where we consume to a point Earth has no more resources? That would be a recession. Focus on sustainability, growth is neither here nor there as a metric.
Chrisitna | 09.15.15 @ 14:56
It's refreshing to see a bit of optimism in the face of recession rather than panic. Things change so quickly...
Rindy | 09.15.15 @ 14:56
I think recession is inevitable at times and I admire the Canadians for having an optimistic attitude. Optimism is important in order to speed up a solution.
Bobbie | 09.15.15 @ 14:58
Economies are always in flux, they will bounce back
Heather | 09.15.15 @ 15:03
I'm surprised more countries aren't in this state the way the world is going.
Beverly | 09.15.15 @ 15:03
Recession, depression, I never understand the use of those words. I only know that our economy is in terrible shape. Good for Canada though.
Nancy | 09.15.15 @ 15:08
Optimism. What a concept. I wouldn't mind if I imported some of that down here in the States.
Kailie | 09.15.15 @ 15:11
I think recession is one of those words that people use when describing any type of financial issues in a country, and sadly - its used far too loosely.
Jo Ann | 09.15.15 @ 15:13
The recession they have is small compared to what we faced a few years ago. That could be why they are optimistic and so hopeful. They are hoping the worst is over and maybe they are aware enough to be taking precautions to prevent a total failure.
Tina | 09.15.15 @ 15:19
If Canada wasn't in a recession it'd be one of the only countries left that wasn't. Reporting on a recession can be a self-fulfilling prophecy - people panic and stop spending and the economy spirals downward. It sounds like Canadians are upbeat so hopefully that will bode well for their economy.
Elaine | 09.15.15 @ 15:22
Optimism is always a good thing. Keep it up Canada and don't the things of this world get you down.
irene | 09.15.15 @ 15:22
Kind of scary,. We are still not quite recovered from the 2008 recession in my house and I shudder to think of it happening again.
Katie Greene | 09.15.15 @ 15:31
It is nice to hear a little optimism. You can't always be at a high, there are ups and downs and every country goes through it.
Kathryn | 09.15.15 @ 15:33
A lot of countries are headed this way.. With how careless we are with everything, it's no surprise.
Kate | 09.15.15 @ 15:44
I think the "recession" is sometimes over exaggerated. I don't think they are doing as bad as people believe.. and if they can remain positive it may make things better if they are in fact having issues.
steven | 09.15.15 @ 15:53
I think the word recession is used way too much. Though with that being said I did not know anything was going on with Canada.
Amanda | 09.15.15 @ 15:58
It just seems like canada as a whole has a different state of mind.
Crystal | 09.15.15 @ 16:00
I agree. Who can take recession news seriously when it is thrown out so flippantly now? Our Canadian friends will be just fine. They are resilient and smart.
Sarah | 09.15.15 @ 16:11
Every recession should have some optimism... that's how we keep working to get back, right?
Sara | 09.15.15 @ 16:15
Can tell I do not keep up with the news. I did not know about them, but glad to hear they are optimistic about it.
Meredith L | 09.15.15 @ 16:48
I really like @Tina 's answer. Oftentimes it can be a self-fulfilling prophecy but a great attitude helps keep people motivated to find answers and work their way through it. If they've created that many jobs in a recession...can we really call it a recession?
Kyle | 09.15.15 @ 16:49
It really wouldn't surprise me.
Alec | 09.15.15 @ 16:54
Hopefully the US's upward turn will help Canada out of their recession and they can keep their optimism between now and then!
Kamie | 09.15.15 @ 16:58
Never heard a Canadian say anything pessimistic.
Chelsey | 09.16.15 @ 02:09
I would like to see someone present a real solution to what seem to be never ending threats of recession. How about more action instead of sitting there speculating all the time.
$commenter.renderDisplayableName() | 01.21.21 @ 04:53