Maybe this time?

The Canadian media have been talking about -- indeed, talking up -- an imminent recession in Canada since about June of last year, and it hasn't come close to happening. Do the relatively weak GDP numbers released this morning mean the slowdown is about to begin? Let's take a look.

According to StatsCan, real GDP rose just 0.1 percent in February. That's weaker than the agency's own preliminary estimate, but note that the growth rate for January, originally reported at a strong 0.5 percent, has now been revised even higher, to 0.6 percent.  The preliminary estimate for March points to a 0.1 percent decline, but even if that happens, real growth for Q1 as a whole is estimated at an annualized pace of 2.5 percent. If you accept the customary definition of a recession as two consecutive quarters of declining GDP, then it will be many months yet before the media forecasts finally prove true. 

That being said, the relative weakness of the economy in February and March, after the very strong gain posted in January, may set the stage for a weak second quarter. The weak March number means that real GDP at the start of Q2 was marginally below its average level for Q1. Hypothetically, if monthly GDP numbers were flat for each month from April to June, the reading for Q2 as a whole would show a slight decline from Q1. 

Then again, real GDP posted monthly declines in both October and December of 2022, only to bounce back smartly the following month. The rest of the data flow, particularly the sustained strength in the employment market, does not suggest the economy is about to topple into a phase of outright contraction. Pace the media, those recession calls may still have to wait a while. 

There is nothing in today's data to change the outlook for Bank of Canada policy in the near term. The "conditional" pause will remain in place for some time to come, even if the Fed does hike the funds rate again next week. For the longer term, if the February and March GDP data do in fact herald the start of a period of real weakness, then the likelihood that the Bank's next rate move will be a cut will start to increase.