Thursday, July 16, 2015

Is Canada in Recession?

 Real gross domestic product (GDP) in Canada fell by .1% the first quarter of this year [here]. A question that keeps coming to people’s mind since then is whether Canada is in recession.

A recession is generally defined as a contraction in the economic activity over at least two consecutive quarters.  So the answer for our worry will depends on the GDP growth rate over the second quarter of this year. Statistics Canada has not yet released these data. But using the information available today, what could we predict?


Real GDP fell again in April. This is the fourth consecutive fall in real monthly GDP this year.  


Real GDP, Seasonally Adjusted, Canada, 1997:M1-2015:M4
Real GDP, Seasonally Adjusted, Canada, 1997:M1-2015:M4

The growth rate Canada experienced in April this year, -.07%, shows a slowdown in the pace of contraction of the economy. Growth rate was -.24% in January, -.15% in February, and -.2% in March.  One can expect a rise in GDP in May or June mainly due to seasonal effects.

My belief that GDP could increase in May or June is based on the decrease observed in the unemployment rate over the second quarter. At the end of the first quarter of 2015, unemployment rate was 7.4%. It went down to 6.5% in June.

June is a moment of year where the unemployment is low in Canada. The seasonal average unemployment rate in June is 6.9%. Thus, the 6.5% unemployment rate observed this year is below the seasonal average and a sign that the economy probably performed better than expected.


Unemployment Rate and its Seasonal Averages, Canada, 1997:M1-2015:M6
Unemployment Rate and its Seasonal Averages, Canada, 1997:M1-2015:M6

The Bank of Canada decreased today its key rate to .5%.This should simply been seen as a measure to stimulate the economy and not an official statement of recession. I do not believe we are already in recession.

The data used are available here