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.”
Have an opinion? Send it to [email protected]