It sucks it seems and the data backs that.
Is Canada’s economy on the verge of slipping into a recession?
It’s a question some analysts are asking after another release of less-than-impressive statistics last week.
The latest bit of evidence came Friday, when Statistics Canada announced the Canadian economy grew by a paltry 0.1 per cent in the fourth quarter. That was the slowest growth in two and a half years.
Lower prices for oil, a slump in real estate prompted by tighter mortgage rules and slower business spending are some of the culprits for the slowdown cited by Statistics Canada. As a result, most experts expect the Bank of Canada to leave its key overnight lending rate unchanged Wednesday at 1.75 per cent.
“There is no denying that Canada is facing a perfect storm at present,” said TD senior economist Brian DePratto in a report analyzing the new data.
“A more intense-than-expected moderation of economic growth came just as North American commodity markets sent Canadian heavy oil prices lower, resulting in an additional near-term growth shock as producers curtailed output,” DePratto added. “All of this is taking place against a backdrop of still highly levered households facing rising borrowing costs for the first time in a generation.”
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Of just as much concern, said CIBC’s Ian Pollick, is that consumer spending — which has helped save the economic day in the past — has also taken a hit.
“While growth was fully expected to slow, some of the details made even the most pessimistic forecaster take notice. ... Canada just posted its worst household consumption numbers since 2015,” Pollick said in a research note.
For a third straight quarter, business spending also fell, this time by 10.9 per cent. That’s hardly reassuring, either, said Benjamin Reitzes, an interest rate strategist at BMO.
“The (Bank of Canada) banking on investment and exports taking the growth reins, but that’s hardly been the case,” said Reitzes, who, like most analysts, expects the bank to leave the overnight lending rate unchanged Wednesday.
“Given the weaker growth backdrop, with the trade and housing uncertainties unlikely to be resolved, we look for the (bank) to be on hold through most of this year,” Reitzes wrote.
The Bank of Canada has raised the rate four times in the last year and a half, with the most recent rise coming in October.
In 2018, the Canadian economy grew by 1.8 per cent, a significant slowdown from the 3 per cent growth in 2017. According to a Bloomberg survey of economists, Canada’s economy is expected to grow by 1.8 per cent in 2019, with a 20 per cent chance of a recession.
Still, despite the steady drip of so-so economic data, we’re unlikely to experience a deep or prolonged recession, suggested TD’s DePratto. That’s due at least in part to the fact that the U.S. economy is still (relatively) humming along. DePratto believes Canada could have a “technical” recession, or two straight quarters where the economy shrinks.
“There are marked differences between a slump, a technical recession, and a true recession,” DePratto wrote. A “true” recession, DePratto wrote, is deeper and more widespread throughout the economy than a technical one.
As an example of a “true” recession, DePratto noted the recession sparked by the 2008 financial crisis. Unemployment rose by 2.5 per cent, across the country in a variety of sectors. In 2015’s “technical” recession, unemployment rose by just half a percentage point, and was mostly driven by a slump in the oil and gas industry.
Josh Rubin is a Toronto-based business reporter. Follow him on Twitter: @starbeer
