It’s now official. Canada’s economy recoiled for the second-straight quarter of 2015 — knocking the country into recession, fresh Statistics Canada data revealed. In contrast, real GDP in the United States rose to 3.7 percent.
The Bank of Canada had earlier hinted of a recession although Statistics Canada’s official data today finally reveals the real state of the economy under Conservative rule.
Central Bank Governor Stephen Poloz said: “Additional monetary stimulus is required at this time to help return the economy to full capacity and inflation sustainable to target.”
The Conservatives, under Harper, however scorned this policy direction opting instead to stick to its pipe dream of having a balanced budget by selling GM shares at a loss, taking a huge amount of money from worker-funded Employment Insurance, and cutting government spending by enormous job and program cuts.
The next issue for ordinary folks will be how long it will last. If the currency exchange rate projection reflects the state of the economy, there are studies that suggest the currency slump could last a decade. The exchange rate went down to C$0.75 cents to a US greenback yesterday. It is believed, it will still go down to around C$0.60 cents to a US dollar if oil prices continue to plummet.
The federal agency said real gross domestic product (GDP), the sum total of all goods and services produced in the country, contracted at an annual pace of 0.5 percent in the second quarter of the year, which followed a revised decline of 0.8 percent during the first three months of 2015.
Statistics Canada says the first-quarter performance was weaker than originally estimated, forcing the agency to lower its GDP reading for the first three months of the year from an original estimate of 0.6 percent.
The new batch of data is likely to add fuel to the heated, ongoing political debate over how best to respond to a weakened economy as parties battle for support ahead of the Oct. 19 federal election. It is also expected to intensify the economic argument over the severity of the technical recession — recently defined by the federal government as two consecutive quarters of negative GDP.
Prime Minister Stephen Harper has side-stepped campaign-trail questions about whether Canada was in recession this year. On Monday, he also declined to define a recession when asked about it. The hobbled economy has so far shaped up to be the primary issue of the campaign.
Harper has reiterated a stay-the on-course mantra, insisting the country must ride out external economic and market turbulence whipped up in places like China. He has argued the only domestic weakness has been in the energy sector, which has suffered from the steep slide in global oil prices.
The Tory leader has frequently cited forecasts that predict the economy will rebound in the second half of the year, including a projection by the Bank of Canada. The central bank, however, has downgraded its projections for 2015 and cut its trendsetting interest rate twice this year to cushion the blow of low crude prices.
Drilling deeper into the second-quarter data, natural resources extraction contracted by 4.5 percent.
A considerable amount of growth in the quarter was found in household consumption at a time when interest rates remained low.
Statistics Canada found that household consumption rose by 0.6 percent in the second quarter, which followed a 0.1 percent gain in the first three months of the year. The second-quarter increase was led by 1.5 percent growth in transport prices.
Business investment in non-residential structures decreased 2.3 percent in the second quarter, the third consecutive quarterly decline. Lower investment in both non-residential buildings (-1.8 percent) and engineering structures (-2.4 percent) contributed to the decline.
Investment in machinery and equipment by businesses fell 4.6 percent in the second quarter. Lower investment in industrial machinery and equipment (-11.6 percent), communications and audio and video equipment (-4.7 percent) and furniture, fixtures and prefabricated structures (-3.0 percent) contributed to the decline.
Exports, however, inched up in the second quarter by 0.1 percent after contracting for two consecutive quarters. The balance of trade, the difference between a country’s exports and imports, is now about negative $17.5 billion. It means Canada had been importing more than it exports.
On a monthly basis, Statistics Canada said wholesale trade rose by 1 percent in June after a 1.1 percent decrease in May and a 1.6 percent in April.
Additional data showed manufacturing output rose by 0.4 percent after contracting by 1.6 percent in May.
From an industry perspective, the value added of goods-producing industries decreased 2.0 percent in the second quarter, while that of service industries rose 0.6 percent.
The finance and insurance sector grew by 0.7% in June and the arts and entertainment industry rose by 6.4%, thanks in large part to Canada’s role as host of the FIFA Women’s World Cup.
The last time the economy contracted over two consecutive quarters was in 2009 during the Great Recession, when GDP pulled back by 8.7% in the first quarter and 3.6% in the second.
Economic Recession
An economic recession is a period of general economic decline and is typically accompanied by a drop in the stock market, an increase in unemployment, and a decline in the housing market. Generally, a recession is less severe than a depression. The blame for a recession generally falls on the federal leadership.
Factors That Cause Recessions:
- High Interest Rate: High interest rates are a cause of recession because it limits liquidity, or the amount of money available to invest.
- Increased Inflation: Inflation refers to a general rise in the prices of goods and services over a period. As inflation increases, the percentage of goods and services that can be purchased with the same amount of money decreases.
- Reduced Consumer Confidence: If consumers believe the economy is bad, they are less likely to spend money. Consumer confidence is psychological but can have a real impact on any economy.
- Reduced Real Wages: Real wages refers to wages that have been adjusted for inflation. Falling real wages means that a worker’s paycheck is not keeping up with inflation. The worker might be making the same amount of money but his purchasing power has been reduced.
An economic recession is typically defined as a decline in Gross Domestic Product (GDP) for two or more consecutive quarters.
GDP is the market value of all goods and services produced within a country in a given period of time. An example of one type of GDP would be the value of all the automobiles produced within Canada for one year. GDP only takes into account new products that have been manufactured. Therefore, if a pre-owned car lot were selling pre-owned cars they would not be included in the GDP calculation.
