Monday, June 15, 2009

A Recession Tale in Canada reports: "Canada's recession, likely its deepest since the Great Depression, may also be its shortest." I have no idea what this means, as output loss appears to be rather benign compared to previous recessions. Many developed economies are posting their worst recessions in several decades, but Canada's 08-09 recession breaks just a 20-yr record as the worst recession since 1990.
The chart illustrates Canada's four recessions since 1960 defined by the two consecutive quarters of negative GDP growth rule. The point 0 marks the first quarter of negative GDP growth, and the recovery consists of 2 quarters of positive growth following the end of the recession.

The 2008-2009 recession started in Q4 2008 as GDP fell an annualized 3.7% over the quarter (the first quarterly negative growth rate). The Bank of Montreal forecasts that the recession will end one year later in Q4 2009, when GDP grows a small annualized 1.5% (see the forecast here under the drop-down menu at the top of the web page). Compared to 81-83 and 90-91, the 08-09 recession looks more benign.

And as oil goes up, so do Canada's prospects. Furthermore, Canada's housing market seems to be back in business as affordability surges; and Toronto's luxury home market is hot right now (ht reader Stephen Saines).

Rebecca Wilder


  1. Hi Rebecca:

    You write: "And as oil goes up, so do Canada's prospects." ... I think this is probably too summary, simply because as oil goes up it will eat into its own market.

    Until there is a recovery in household equity/spending--a notion on which you've thrown cold water--there will be a ceiling on the amount of gasoline that folks can buy at $3/gallon. As people react by driving less, oil will likely be forced down.

    (Course the oil fundamentalists--so to speak--have been flummoxed by the recent rise altogether in recent months.)

    -- FB

  2. Good post Rebecca.

    Glen Hodgson, chief economist at The Conference Board of Canada told my readers to expect a Q3 recovery here (in his words, a "tepid recovery"). That's a bit ahead of the Q4 consensus we're hearing most often.

    What's most interesting to me is the impact of household debt on spending power in Canada, the U.S. and elsewhere. Global growth depends on it.

  3. freude:Oil does tend to eat its own tail, so to speak, but there is a clear net benefit to the overall economy, albeit slanted to the petro provinces.

    It is clear, the Cdn housing market, although not confirmed by independent offical stats, is doing surprisingly well considering the stress.

    The most interesting question is 'why'? Canada is doing something quite right, compared to other Western nations (with the possible exception of Australia, albeit resources are the major factor there more than underlying market regulations and fundamentals. Oz, like Can, has had no bank failures, and fin-reg is exemplary like Can).

    Canada's answer may be what the US has lost track of:
    Mortgage Insurance. (and the inherent conservative practices that go with it) The US FHA Model fell out of favour for the Subprime fiasco of second mortgages for the down-payment.

    This may be a case of 'slow and steady wins the race'.

    Kevin mentions the impact of household debt on spending power.

    As that applies to Canada:
    [...][While stressing that the possibility of a mass bankruptcy is remote, the ability of Canadians to repay their bank loans has replaced frozen credit markets as the main fear factor among policy makers, the (Bank of Can) report said.

    “There has been a further deterioration in the financial position of the Canadian household sector as a result of the continued turmoil in financial markets, the deepening global recession, and worsening labour market conditions,” the report said. “Nonetheless, in aggregate, the financial situation of Canadian households remains reasonably healthy.”

    Canadians' household debt is about 140 per cent of disposable income, compared with about 150 per cent in Britain and almost 170 per cent in the United States. The level is about 90 per cent among the countries that use the euro.][...]

    The Bank of Canada source is:

    I'd like to offer more detailed reference but I'm running my computer directly off of the Linux disc, having bought an IBM computer which glitches on Ubuntu.

    What I can state in that regard is that when one is signed into Gmail, the same cookie signs you in here!

    Excellent post, Rebecca, and quality comments from other posters.

    PS: Although Can's present predicament is only the worst in twenty years, part of that is because we were whacked so hard previous recessions.

    None-the-less, as Rebecca had pointed out months back, Canada is well-placed to weather the recession this time.

    Americans in general are very open to learning from that.

    Now if only the Brits could learn something.

    I blame the language myself....

  4. Hi Freude Bud,

    You say: “Until there is a recovery in household equity/spending--a notion on which you've thrown cold water--there will be a ceiling on the amount of gasoline that folks can buy at $3/gallon.”

    I wouldn’t be too hard on firm revenues, which soar with commodity prices in Canada. Domestic demand is highly correlated with commodity prices.


    Hi Kevin,

    Thanks for commenting – I will definitely look at your blog articles. You say: “What's most interesting to me is the impact of household debt on spending power in Canada, the U.S. and elsewhere. Global growth depends on it.”

    I know, interesting isn’t it? From China, to the US, to Canada (ex Japan), the consumer is most definitely the “wild card”.

    Thanks for commenting. Rebecca

    And Stephen,

    Nice as always to hear from you. Yes, the April policy report ( was pretty gloomy. Wonder what the report will look like next quarter if oil prices remain elevated and the housing market decidedly bottoms?


  5. Kevin: JUsdt realized through Rebecca's comment that you run a blog. Not just any blog, but for SunLife.

    There's a real family connection there, a brother-in-law now a retired exec of Sun Life.

    Sun Life is a prime example, even with writedowns, of a Cdn Co well run and able to expand internationally.

    I believe there were ruminations of SunLife buying up AIG assets a year ago.

    I've now accessed your blog, excellent reading.


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