Canadians’ most asked questions about the recession, answered by economists

Steve Mertl
·National Affairs Contributor
Canadians’ most asked questions about the recession, answered by economists

If online search results are anything to go by, a lot of us are worried about Canada’s purported recession.

Google Canada released a couple of interesting facts this week. Recession was the top trending election-related topic on Google in August, ahead of daycare, the Bill C-51 national security legislation, the Mike Duffy expenses scandal and a tax on Netflix.

But the recession queries really came to a head recently. On September 1, the things Canadians wanted to know most were whether the country was indeed in a recession, what the heck was a technical recession, why Canada was in recession (if it was), how often the economy had experienced recessions and how they could survive such a slump.

All good questions, really, so Yahoo Canada tapped some of Canada’s top economists to get the answers.

Is Canada in a recession?

According to economists, probably not — though some people may beg to differ.

Recessions are a prolonged and broad-based contraction in a country’s gross domestic product (GDP).

“We’ve had a very slight decline in GDP but no decline in employment,” says Avery Shenfeld, managing director and chief economist at the Canadian Imperial Bank of Commerce (CIBC). “We’d need to at least see employment growth stall before you would call it a recession.

“I guess I should say, no, not yet is the right answer. Because it’s always possible that in the next six months we’ll see a larger decline in GDP and employment and they will then say the recession started at the beginning of year.”

His counterpart at BMO Capital Markets agrees.

“I would still lean on the ‘no’ side of that question, even though I know everybody and his uncle was saying it’s official that we’re in recession,” says BMO chief economist Doug Porter.

“The classic definition of recession is a broad-based lengthy period of contraction. I think we’ve had a relatively lengthy period and we’ve definitely had a contraction. But I just don’t believe that it’s widespread enough and that it hasn’t affected things – at least not yet – like employment and spending.”

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That doesn’t mean some regions haven’t effectively displayed recessionary characteristics. For most in Ontario and British Columbia, this year will not feel very much different from 2014, says Pedro Antunes, deputy chief economist for the Conference Board of Canada.

“But if you’re in Alberta, Saskatchewan, Newfoundland and Labrador this is where it’s going to feel a whole lot different,” says Antunes, who is the board’s executive director of economic outlook and analysis.

What is a technical recession?

The answer to that is tricky.

“There’s no such term,” says Shenfeld. “You can’t be in a technical recession any more than you can be technically pregnant. You either are or are not in a recession.”

In Canada, a recession is generally defined as two consecutive quarters of negative economic growth (that is, contraction) in GDP.

“We have clearly had that; there’s no debate about that,” says Porter.

Statistics Canada figures showed just such a decline for the first and second quarters of this year, though Prime Minister Stephen Harper seized on growth in June as a sign the worst was over.

But those numbers aren’t final. Porter noted GDP figures sometimes go through substantial revisions as more data comes in. Trade figures are most susceptible to updating and economists this week are awaiting trade figures for May and June. But Porter believes the original StatsCan figures are conservative enough that the overall conclusions about the first six months of economic performance won’t change.

Antunes says it’s not clear why Canada embraces the two-quarters yardstick to define a recession. He prefers the approach used by the U.S. National Bureau of Economic Research, which looks at data between the peak and the trough of economic activity, especially employment, through an entire business cycle to determine ex-post facto whether a recession has taken place.

“In other words, they won’t declare that it’s a recession until they’ve gone through the full cycle,” he says.

“In Canada this time, we’ve actually seen employment growth, I mean not great, certainly; in Canada nationwide it’s been been pretty muted growth, but growth nonetheless.”

Still, applying the accepted Canadian definition, yes, there was a very slight contraction, Antunes says.

Why is Canada in recession?

“I would reword that as why are we close,” says Shenfeld. “We have seen a decline in output and a lot of that is because with much lower oil prices the capital spending that the oil and gas industry was doing has been plunging.
That was enough of the Canadian economy to drive us into something close to a recession.”

Porter also points to the oil and gas sector’s outsized influence on the overall economy as the main driver behind recession indications.

The U.S. also has a flourishing energy industry based on shale oil and gas fracking but it’s a small proportion of its economy. But Canada produces four times as much oil per capita as the U.S., which managed four per cent growth in the second quarter, compared with a half per cent drop in Canada, he says.

“I think the big difference between the two economies simply was the very heavy drag of the oil and gas sector on our economy,” says Porter. “Energy is much more important to Canada than it is to the U.S.”

It’s also very much a regional phenomenon, as Antunes points out. Alberta, which has managed four per cent growth in recent years, will see its economy shrink by one per cent, the Conference Board forecasts.

Newfoundland and Labrador will also likely be in recession while Saskatchewan should not expect a decline. The board also hoped to see stronger growth in Ontario and Quebec as a lower dollar juices exports.

“That’s really not happening,” Antunes says. “And we’re really not seeing a revival in investment, either, which is a precursor really to better performance in exports outside of the energy sector.”

The reason, it appears, is that many businesses are sitting on their corporate wallets, not spending to expand their capacity, he suggests.

“We’re at capacity because we’ve had so little new investment in Canada in plants and equipment, retooling, et cetera,” says Antunes.

“Now that we’re at capacity the dollar’s weak, the U.S. economy’s really looking to fire up on all cylinders, yet we really haven’t seen the investment come into Canada.”

Conservative attitudes to exploiting opportunities and boosting productivity – an aversion to risk – are a chronic problem in corporate Canada, he went on to say.

“We do tend to do a lot of research and development,” Antunes said. “It’s the commercialization and entrepreneurial aspects that we seem to be lacking in when we look at some of the indicators that might give us a sense of what’s going on there in comparison to other countries.”

How many recessions has Canada had?

That number is 12, going back to 1926 when data started being kept, says Porter. Thirteen if we turn out to have been in recession this year.

“That means they happen about once every seven years or so,” he said.

That includes the Great Depression.

“There were actually two separate major recessions in the thirties, one from 1929 to ’33 and one from ’37 to ’38,” said Porter.

The hardship of those years has been well chronicled but younger Canadians have gone through their share of slumps, too. There was a serious recession in 1981, another around 1990, a dip in the mid-90s and of course a major decline following the 2008 financial collapse.

“I would say they were all different but I would say they were all more or less very, very serious and of roughly equal magnitude,” said Porter.

All left lasting scars on Canada’s economic landscape, which may be why experts are reluctant to label this a recession yet.

“I think it does scare people a bit because our last three recessions were so serious,” he said.

How to survive a recession?

Advance preparation.

“It’s always tough to shut the barn door after the horse has bolted,” says Porter. “But I would say in general it’s always wise, especially if you’re not in a public-sector job, to basically have a relatively solid nest-egg that can get you through a tough spell.”

If you have investments, says Shenfeld, make sure you are not over-exposed to assets such as stocks that can nose-dive in a recession. Diversify to include assets that are better insulated from market dips.

“Have some funds in reserve,” he says, but concedes, “For young people starting out, that’s difficult to do.”

And of course, watch your debt levels, especially credit cards, in case you lose your job or find your hours cut.

“I would encourage everyone to be very prudent in terms of their borrowing and make sure they don’t over-extend themselves,” says Porter. “I think that’s sensible advice at any time.”

This advice is especially relevant to those working in fairly cyclical industries, such as oil and gas, mining, manufacturing and construction.

“You end up taking the good with the bad,” says Shenfeld. “You suffer the booms and the busts.”

But the oil and gas sector aside, there’s no evidence yet of widespread job losses, the economists say.

“We are seeing weaker pay increases at the moment,” Antunes says. “In terms of the compensation outlooks that we’re hearing about, that’s probably going to happen.”

But purchasing power remains stable thanks to low inflation and if most Canadians hang on to their jobs during this uncertain economy, “in general it shouldn’t be too, too tough to survive this recession,” he says.