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Comments on this story are moderated according to our Submission Guidelines. Comments are welcome while open. We reserve the right to close comments at any time. Join the conversation Create account. Already have an account? Business Economists agree Canada is in a recession, but there's little consensus on why Economists say there is no doubt that Canada is experiencing a recession, but the exact criteria determining one is underway can be fraught with confusion.
Social Sharing. As recently as April, the Bank of Canada was suggesting growth in the first half of this year would be around one per cent. Bartlett added that GDP growth for the remainder of the year is also likely to be weaker than expected, coming in around 1. In Fort McMurray, Alta. Restaurant tables sit empty, apartment vacancies are climbing and the local airport is no longer packed with workers flying in and out of the tiny community.
Meanwhile, the unemployment rate has more than doubled to 8. The Canadian Association of Petroleum Producers, meanwhile, estimates that spending on exploration and development will be down 40 per cent this year over last. In a telling sign of the times, Irving Shipbuilding of Halifax held a job fair in Fort Mac in the hopes of luring back workers disillusioned by the Western Canadian dream.
Some U. For Canada, the current economic predicament would have seemed unimaginable just a few years ago. For several years, it seemed true. China went construction-mad by erecting factories, airports, super-malls, high-speed rail, massive hydro dams and even entire cities.
There were even stories of villages where farmers spent all day trading stocks and then resumed tending to their fields once the closing bell rang. More alarming: some Chinese industrial companies became increasingly reliant on trading equities to deliver profits as demand for their goods and services waned. By early July, it was all over. When a year-old allegedly began spreading rumours on social media that people were jumping off buildings in Shanghai, he was swiftly arrested by authorities as they scrambled to calm investors.
Investors look at computer screens in front of an electronic board showing stock information at a brokerage house in Shanghai, China, July 14, More importantly, China has played an outsized role in determining the price of global raw materials price, which is why the recent Shanghai stock market crash also impacted the share prices of Canadian mining companies like Goldcorp, Barrick Gold, Silver Wheaton and Newmont Mining, to name a few.
Officials compelled brokers to pour billions into the market while companies halted IPOs and thousands suspended trading of their shares. Yet, as recently as December , the Bank of Canada was still touting rapid Chinese economic growth as a reason why oil prices would continue to rise and benefit the Canadian economy. After the credit bubble burst in August , the financial crisis spread like wildfire.
The liquidity crisis turned into a solvency crisis. In September , the crisis worsened, and its effects were felt throughout the entire American financial system, triggering a series of events at breathtaking speed. In very short order, we witnessed the bankruptcy of Lehman Brothers and the nationalization of Fannie Mae and Freddie Mac. Stock markets registered their greatest drops in more than 75 years.
The spectre of the Great Depression of the s hovered on the horizon, reminding us that recessions following financial crises are usually longer and more difficult than others and leave behind indelible scars. Although Canada was not at the epicentre of the crisis, the contagion can spread through a number of transmission channels.
The financial crisis was clearly leading to a massive slowdown of global economic activity, with a direct impact on foreign trade. Since three-quarters of our exports are destined for markets in the United States, experience taught us that when the United States sneezes, Canada catches a cold Chart 3.
Further, with the increasing integration of the global economy, the fates of national economies are much more closely interrelated, even more than might be expected based on the scale of our international trade. For all these reasons, the financial crisis was expected to have a significant impact in Canada, and for the first phase of the cycle, this was certainly the case. During the last recession, GDP declined by 3. In contrast, over the same period of time in the s and the s, it fell by 2.
A prominent feature of the recent recession was the spectacular drop in exports. Exports were harder hit than in any previous recession, decreasing by 16 per cent over three quarters, while the most significant drop during the recessions of the s and s was only 8 per cent Chart 4. Investments were equally hard hit by the recession. There was a 22 per cent downturn in investments over just three quarters Chart 5. Nothing like this has ever been seen. It took two years during the s recession, and three years during the s recession, before a downturn of comparable magnitude was recorded.
This recent decline in investment is partly due to the exceptionally high levels of uncertainty haunting the global economy. In sum, the recent recession was different from previous ones, owing to a more pronounced slowdown triggered by unusually steep drops in exports and investment.
Despite the rapid slowdown, the recovery was faster than those that followed previous recessions. Neither exports nor investments can provide the answer.
While GDP has recovered to pre-recession levels, business investment and exports have only recovered 45 per cent and 67 per cent, respectively, of the losses incurred during the recession. If the recovery was speedier, despite weaker contributions from investment and exports, support for the recovery must have come from household and government spending.
This was indeed the case. Household spending declined by only 2 per cent between and , compared with 6 per cent during the previous two recessions. The contribution of government spending to growth was more than one percentage point in each year. Major adjustments had been made to the structure of the Canadian economy. Business and household balance sheets were relatively sound, and the banking system was robust, managed prudently, and sufficiently capitalized.
The fiscal situation was favourable, and the social safety net and regulatory framework were effective. As well, household spending was boosted by the prosperity arising from strong demand for our natural resources and by improved terms of trade.
This favourable position gave Canada the flexibility it needed to respond strongly to the crisis without compromising the credibility of our public policy frameworks. Thanks to the expansionary monetary and fiscal measures adopted in concert with other G countries, Canada was able to support domestic demand which contributed significantly to the economic recovery. In Canada, then, we had room to manoeuvre to help us effectively absorb the aftershocks of the global economic crisis.
It is essential to maintain this buffer in light of the elevated risks that still exist worldwide and the structural issues that persist in the Canadian economy, even after the recession.
The standard of living that we will be able to sustain in the medium term will depend, in fact, on our ability to address these issues. Allow me to address three of these issues: household indebtedness, international competitiveness and, more importantly, our productivity. Let us start with household debt. Since the beginning of the recovery, household credit has increased at twice the rate of personal disposable income.
In the autumn of , Canadian household debt climbed to an unprecedented level of per cent of disposable income Chart 7. However, going forward, it is essential to maintain the necessary room to manoeuvre to keep household spending on a viable path. This leads us to believe that the rate of household spending will more closely correspond to future earnings, and certain signs to that effect have already been observed.
The second issue is our ability to compete internationally. The slow recovery of exports is due in part to the sluggishness of global economic activity. It is also due to the continued erosion of Canadian business competitiveness over the past ten years.
Thus, Canadian exporters are seeing their market shares for a wide range of goods drop in the U. As global economic growth continues to take root, we are seeing early evidence of a recovery in net exports. But, at this point, exports are still weak when compared with previous recessions.
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