The House

Is Canada in a recession? Finance Minister Joe Oliver says no

Economic indicators are painting a grim picture of the Canadian economy. Now the Bank of America is using the R-word, forecasting that once the numbers are in, they'll show Canada is already in a recession. What would that mean for the upcoming election campaign? Finance Minister Joe Oliver joins us for his assessment of the situation.
Finance Minister Joe Oliver. (Darren Calabrese/Canadian Press)

New GDP numbers for the month of April are causing economists to forecast a possible recession for Canada, but Finance Minister Joe Oliver doesn't think the bad news will have an impact on the Conservative brand as good fiscal managers heading into the election.

"I think people understand the recent economic data is a result of external events," he told host Chris Hall on CBC Radio's The House, pointing to the fall in the price of oil and international instability in countries like Greece as factors.

Oliver is confident the country is not headed towards a recession, despite new data from Statistics Canada earlier this week that shows GDP has shrunk in each of the first four months of the year — two-thirds of the way toward the technical definition of a recession.

"We don't believe there will be (a recession)," Oliver said. "We're expecting solid growth for the full year."

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.

Canada 'stuck in a bit of a funk', economist says

The government's budget projection accounts for a weak first quarter due to the impact of the dramatic decline in the price of oil, he said. 

Now though, with a barrel of oil selling in the high $50s, Oliver is predicting a more positive back half to 2015.

"There is an indication that consumers are becoming more optimistic and, also, manufacturers are looking for a more robust period ahead," he said. 

"We're going to have a surplus this year equal to the amount we forecasted, which is $1.4 billion. I'm not suggesting there aren't other views out there. We're monitoring the situation, of course, but we remain comfortable that we're going to have a solid growth this year."

One of those differing opinions belongs to Bank of America economist Emanuella Enenajor.

"I think the worst is hopefully behind us, but I don't know that we're going to get rip-roaring growth in the latter half of this year," she told The House in a separate interview.

"We got a pretty disappointing GDP read for the month of April and it sets us up for a very, very weak second quarter. Under most reasonable scenarios, we're going to have a negative quarter, and that's the second negative quarter in a row. So technically Canada likely was in a recession the first half of this year."

Enenajor also disagrees with Oliver's outlook on the manufacturing industry.

"The manufacturing sector doesn't appear to be really leading growth either, so we're stuck in a bit of a funk," she said. "Growth is dependent on highly levered consumers and domestic demand, which remains quite weak."

That's why Enenajor doesn't believe the Bank of Canada will lower interest rates quite yet. In January, the central bank's governor Stephen Poloz made a surprise rate cut from one per cent to 0.75 per cent — a move he referred to last week as "life-saving surgery" for the Canadian economy.

The bank's next interest rate announcement is July 15.

"There's a lot of speculation that they might actually ease, but I think the governor will hold rates for now," Enenajor said. 

"Fundamentally there are underlying challenges in the economy, so there's a real risk the bank might ease later this year," she added.

Oliver said he agreed with Poloz's January rate cut, saying the Bank of Canada hasn't needed to take the "draconian steps" that are happening in Europe.

What keeps Oliver awake at night?

Oliver admitted Canada is in a "fragile economic environment", thanks in part to the global economy that he called "very disappointing...really quite mediocre."

"We've seen a US economy that has had an even weaker first quarter than we did, China's growth is down, Japan just emerged from a recession and Russia is hurting," he said. 

But it's a different country altogether — Greece — that's keeping the finance minister awake at night as the debt-ridden country heads into a referendum this weekend.

"People ask me what keeps you up at night and then they stopped asking me after the price of oil fell, but there's another reason for concern," he said. "The Greece situation is a reflection of the fragility of the international market."

"We're comfortable that there is strong leadership in Europe to deal with it, but here in Canada we need strong leadership also," Oliver added.

"This isn't the time to take risks. We can't experiment with risky plans that could drive us into a deficit."