Canada in recession (or not)

The media are making a huge deal of the fact that Canada's GDP edged down in the second quarter of the year; this is the second straight quarterly decline, so the economy is "officially", as the media love to say, in a "technical recession". Samples of the media coverage can be found here and here.

And yet....at the same time as it released the quarterly figures, Statistics Canada also released monthly data that show real GDP actually increased by 0.5 percent in June.  So although the quarterly data allowed the media to declare a recession, as they had been chomping at the bit to do for the last several days, the real story is that the economy shrank for five months before starting to grow again. Most forecasters, both in government and out, expect that growth at a moderate pace will continue for the remainder of the year.  The recession, in other words, is already over -- indeed, it was over before the media even got to pronounce it as "official".

If you take a look at the actual StatsCan report, you'll see that the weakness in the first half of the year was concentrated in the resource producing sector of the economy, as you would expect. That's unlikely to improve any time soon -- the government of Alberta, the biggest energy-producing province, admitted just this week that the provincial economy there had slipped into recession. However, there are few signs that the rest of the economy is stumbling. Household consumption accelerated smartly in Q2, and there was even a small gain in export volumes.

So where does this leave the Bank of Canada, whose next rate decision is imminent? That export gain in Q2, welcome though it was, must be seen as disappointing, considering the sharp fall in the exchange rate in the last two years. Will the Bank be tempted to cut rates again in hopes of pushing the currency even lower, or will it see the June gain in GDP as reason to stand pat? Stay tuned.