No surprise for most Canadians as Statistics Canada confirmed on Tuesday the country is in a technical recession: after two quarters of negative GDP growth, the Canadian economy is stalled. In the second quarter, real gross domestic product (GDP) declined by 0.1% following a 0.2% decrease in the first quarter.
The energy sector continues to be the cause for decline as it struggles with low oil prices. But before we point too many fingers at the slumping energy sector, we should also remember that Canada is a trading nation and relies on exporting various commodities to a global market place. As global demand for commodities has dropped, so have prices. Over the summer, we’ve seen China, one of our larger trading partners, struggle with growth in its own economy as it changes policy direction from export-focused to consumer-driven demand. Chinese stock market gyrations have added uncertainty to the country’s search for economic stability.
A bright note of economic news came last week from our southern neighbour. The US reported a 3.6% gain in GDP over the second quarter ahead of forecasted growth of 2.3%. Welcome news for those Canadian manufacturers who sell into this market and are able to take advantage of this growth supported by a favourably low Canadian dollar.
Although the news headlines are bleak, a look at the bigger picture suggests the economic hole is not that deep. So far, employment has been relatively stable for most Canadians over the last two quarters, excepting the energy sector. While consumers may respond to the latest gloomy news by pulling back on spending, they shouldn’t panic. The GDP figures for June show a monthly increase of 0.5% from May. If this trend continues, the next quarter should be better. Besides, with 60% of the economy supported by consumer spending, it’s important that we all do our bit to keep us out of recession.
— By Janice Plumstead, Senior Economist