Canada in Recession

08 Sep


On September 1, 2015, Statistics Canada reported that the economy has contracted by 0.5% in Q2 2015, after falling 0.8% in previous quarter. This implies that the Canadian economy is in recession for the first time since the financial crisis, as they reported two consecutive quarters of negative growth.

Plunging oil prices constituted the primary factor weighing down the Canadian economy in the last two quarters, leading to shrinkage in business investments and creating sustainability issues for existing businesses. The mining, quarrying and oil and gas exploration sector took the biggest hit. It was down by 4.5% amid shutdowns and production barriers in Q2 2015.

Other factors that led to contraction of the Canadian economy were subdued business investments, a decline in new home construction (-4.1%), passive exports data and falling inventory levels. The most affected regions were energy exporting areas like Alberta. The results are expected to hurt current Prime Minister Stephen Harper’s chances to win in the upcoming elections on October 19. The opposition party has pointed out that Harper’s policy has failed, arguing this is a lost decade for Canada.

On the other hand, Statistics Canada also reported that the country grew at a faster rate in June 2015, which made many economists believe that the worst may be over. “Despite the technical recession materializing, it does look like the Canadian economy is jumping back. The June numbers are comforting in that regard,” said Derek Burleton of the Toronto-Dominion bank. Some analysts and economists have stated that the Canadian economy is far from recession. The positives alluded by the report includes improvement in household expenditure amid strong demand for durable goods and relatively stable unemployment

As a result of weak economic data in Q2 2015, the S&P/TSX Composite Index, measure of Canadian Stock market, tanked by 377 points (or 2.72%) on September 1, 2015. Most analysts believe that The Bank of Canada will cut interest rates in their next meeting in order to revive the economy, even after two previous cuts this year. Bricklin Dwyer of BNP Paribas said, “The Bank of Canada is likely to read this report as disappointing. While the quarter’s growth was in line with their forecast, Q1 was weaker than they thought. This combined with the composition of growth and the recent move in oil prices, suggests that the risks to the outlook remain clearly skewed to the downside.”

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Posted by on September 8, 2015 in Articles, International News


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