Recession confirmed as Canada's GDP shrank in 2nd quarter

Canada's economy expanded in June but declined by 0.1 per cent for the second quarter as a whole, meeting the bar of what is legally defined as a recession.
Canada is in a recession. How worried should you be? 13:39

Canada's economy expanded in June but declined by 0.1 per cent for the second quarter as a whole, meeting the bar of what is legally defined as a recession.

The economy expanded by 0.5 per cent in June, Statistics Canada said.

But that slight monthly uptick wasn't enough to offset the contraction in the previous two months, which means for the second quarter as a whole, the economy shrank.

The economy also shrank in the first quarter, which means Canada's economy has met the bare minimum required before a recession is declared — two consecutive quarters of decline.

On an annualized basis, the economy shrank by 0.5 per cent in the April-to-June period, after contracting at an 0.8-per-cent annual pace in the first three months of 2015. For comparison purposes, the U.S. economy expanded by 3.7 per cent during the same period, the data agency noted.

The 'R' word

The numbers bring an end to what had been a contentious issue during the current federal election campaign.

While most economists would agree that a recession is a more complex beast than merely pegging it to two quarters of negative growth, most agree it's as good a place to start as any.

Indeed, the federal government's recent legislation on balanced budgets defines a recession as "a period of at least two consecutive quarters of negative growth in real gross domestic product for Canada, as reported by Statistics Canada."

"With StatsCan making it official that we did have two consecutive quarters of declining GDP, the recession bugs will be chattering," Bank of Montreal economist Doug Porter noted.

But while the quarter numbers were down, the data hinted at growth towards the end that may have carried into the current third quarter.

Turnaround coming?

The service sector expanded by 0.6 per cent between April and June, for example, which helped offset a decline in goods-producing industries like oil and gas, and manufacturing.

While the resource sector continued its slide, shrinking by 4.5 per cent in the quarter, other industries expanded, including the public sector, wholesale trade and real estate agents, where economic activity expanded by a whopping 9.9 per cent.

Households also spent more during the quarter. Consumption increased 0.6 per cent in the second quarter, following a 0.1 gain in the first quarter.

Add it all up and Tuesday's data suggests "there was a recession," TD Bank economist Randall Bartlett said. "In our view, it was a very very mild one in the first half of 2015, but that's behind us now and all indications point to a positive growing economy for the rest of the year."

Other pundits took a less rosy view.

"With exports still struggling and business investment falling in response to the fallout in the energy sector, hopes for a sustained rebound beginning in the second half of the year look misplaced," Capital Economics' David Madani said, noting that despite a drastically lower Canadian dollar, Canada only exported 0.4 per cent more in the quarter. And that figure follows two straight quarters of decline.

"The breakdown showed that the economy is still struggling to deal with low oil prices," Madani added.

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