Despite an economy that's shrunk every month for which we have data this year, the federal finance minister says Canada is not in a recession and is poised for growth later in 2015.
At an event in Toronto on Friday, Finance Minister Joe Oliver told reporters that the economy will avoid recession this year, despite new data from Statistics Canada earlier this week that shows GDP has contracted in each of the first four months of the year — two-thirds of the way toward the technical definition of a recession.
"First off, we're not in a recession," Oliver was quoted by Bloomberg as saying. "We don't believe we will be in a recession."
Technically, economists define a recession as two consecutive quarters with negative GDP growth. Oliver said it's too early to say the country is in a recession because we don't have economic data for the entire January to June period.
"We expect solid growth for the year, following a weak first quarter."
April's federal budget assumed an economy that would grow by about two per cent this year. So far, the numbers show the economy shrank by 0.6 per cent in the first three months of the year, and another 0.1 per cent in April.
The Finance Department's optimism is far from a universal view. Bank of America economist Emanuella Enenajor raised eyebrows with a report on Thursday, in which she said the GDP report for April, which showed the economy shrank by 0.1 per cent, caused her to revise her expectations downward for the entire April to June quarter.
That would be enough to bring a dirty economic word into the discussion: recession.
"With a second straight quarterly GDP decline, Canada would technically be in a recession," Enenajor wrote.
She said she expects the Bank of Canada to cut rates again at least one more time this year, possibly as soon as this month, to head off any slowdown.
She cites one statistic as a major reason for her concern: a dwindling number of Canadian factories. All things being equal, Canada's manufacturing sector should be doing better than it is, because a loonie that has depreciated by 22 per cent over the past two years is great news for exporters. But that's not happening. There are currently fewer than 54,000 factories across the country, a figure that has been steadily inching lower since even before the last recession in 2009.
"Factories are critical for Canada's economic growth, as stronger non-energy exports are critical for an expansion of Canada's tapped-out highly levered economy," Enenajor said.
That weak factory data suggests Canada's economy will fail to rebound in the second half as the Bank of Canada and the Department of Finance expect.
On Friday, the Canadian dollar edged lower to 79.63 US cents, after starting the week at 81 cents. Oil, whose drop has done such damage to the Canadian economy, took its biggest plunge since March this week, with West Texas Intermediate crude falling $4.50 to $55.52 US a barrel at the close of trading.
Enenajor isn't the only economist to invoke the R-word. "The surprise contraction in April GDP leaves open the probability that the second quarter as a whole could be negative, which would technically put the economy in recession," CIBC economist Andrew Grantham said in a note to clients.
There is at least one prominent economist, however, who agrees with Oliver's view that talk of recession is premature. "A recession is a sustained, broad-based decline in economic activity," BMO economist Doug Porter said. "Canada simply does not meet that test.
"The bigger … picture in Canada is consistent with a sluggish economy, not one in recession," he added.