recessions

Canada slipped in the “technical recession” territory in the first two months of the year as reported by Statistic Canada earlier this week. Economists say however that the contraction should be short-lived.

A “technical recession” just means that it has met the technical test of a recession which is two consecutive quarters of negative economic growth as measured by a country’s gross domestic product (GDP). So we are “technically” in a recession but other factors are required to establish recessions.

Recognizing how widespread the downturn was matters greatly. Did it affect a range of sectors in the economy, or was it confined to a few? Did the drop spread into other indicators, such as employment for example?

The main factor that dampened Canadian growth this year was the cyclical downturn in the price of oil.

Contrary to what is best reported in the media, there are plenty of signs that the trend of the economy was improving during the second quarter. Jobs grew steadily and the federal government ran a budgetary surplus in the second quarter. The declines in GDP so far this year were also microscopic.

The term “technical recession” has been widely use to demonstrate that this will unlikely be the beginning of a deep and long recession.

TD chief economist Beata Caranci says the benefit of the lower loonie to Canada’s export sector should boost growth in the third quarter. Caranci says that although exports were supposed to see a boost sooner, the sector’s sensitivity to the loonie has diminished over the past decade as the U.S. — Canada’s biggest trading partner — has been importing more from China and Mexico.

TD is forecasting economic growth in the 2% to 2.5% range in the third quarter, which Caranci says would make another rate cut from the Bank of Canada unlikely.

However, Capital Economics economist David Madani says he anticipates growth in the third quarter to be “unspectacular.”

Madani says business confidence indicators suggest the economy will continue to struggle in the second half of the year, even though it will return to positive growth.

So, we may be in a “technical recession” but modest growth is still expected.