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Do you think Canada is in a recession?

Poll: Recession?

After a rapid series of interest-rate hikes from the Bank of Canada since early 2022, the economy is now limping along. Canada’s gross domestic product has flatlined in recent months, sparking a discussion of whether the country is entering a recession.

Making that determination is not always easy – and sometimes, it takes years to reach a definitive conclusion. Here’s an explainer that examines our economic malaise.

What is a recession?

A recession is generally defined as a significant decline in economic activity that is felt across business sectors and lasts for at least several months. The unemployment rate typically increases a lot in such situations.

There are, however, no hard-and-fast rules for what qualifies as a recession. The National Bureau of Economic Research in the United States has a committee that considers three criteria – the depth, breadth and duration of a downturn – in making its call.

It is not necessary for all criteria to be clearly met. From peak to trough, the economic downturn in early 2020 – during the first wave of COVID-19 – lasted only two months. However, the decline in economic activity was so severe and broadly felt that the NBER considered it a recession, making it the shortest one in U.S. history.

“Expansion is the normal state of the economy; most recessions are brief,” the NBER explains on its website.

However, the research organization also noted that it can take a while for economies to recover to their previous peaks, as seen after the Great Recession of 2007-09.

Is Canada in a recession?

No. Canada recorded a small decline in real (inflation-adjusted) GDP in the second quarter. Early data suggest the Canadian economy could mildly contract again in the third quarter. Statistics Canada will publish its third-quarter GDP figures on Nov. 30, offering a better sense of whether the country is at risk of a lengthy downturn.

Even then, we probably won’t know if Canada has slipped into a full-fledged recession. Statscan revises its numbers over time, so these slight declines could easily turn positive.

Another argument against recession: the economy is still churning out jobs. Over the past six months, employment has risen by roughly 26,000 positions a month.

“The economy isn’t in a recession when it is generating net new jobs,” Toronto-Dominion Bank economists said in a recent report. “The weak GDP prints are partly capturing idiosyncratic factors such as wildfires and strikes rather than recession.”

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