Startling near-halt to economic system stokes concern of recession

Canada is on recession watch after its economic system virtually stalled on the finish of final 12 months.

Gross home product grew by simply 0.1 per cent within the fourth quarter, or 0.four per cent annualized, Statistics Canada stated Friday. It’s a weak sufficient quantity that might simply be revised right into a contraction as new information are available.

Gross domestic product grew by just 0.1 per cent in the fourth quarter, or 0.4 per cent annualized, Statistics Canada said Friday.
Gross home product grew by simply 0.1 per cent within the fourth quarter, or 0.four per cent annualized, Statistics Canada stated Friday.  (Ryan Remiorz / THE CANADIAN PRESS)

And there could also be no quick aid to start out 2019. Most economists have been anticipating the primary three months of this 12 months can be even weaker, due to the impression of oil manufacturing cuts mandated by Alberta’s authorities.

Whereas the slowdown was anticipated, the image is way bleaker than anybody anticipated with weak point extending nicely past the battered power sector — reflecting a confluence of headwinds from the impression of upper rates of interest to world commerce tensions denting enterprise and family confidence. Although the labour market continues to be fairly robust, Friday’s numbers counsel Canada might have few reserves to climate any new shocks.

“Judging by the employment numbers, we’re not near a recession however we’re in a sluggish progress surroundings the place yet one more piece of unhealthy information that isn’t at the moment on the market might definitely ship us there,” Avery Shenfeld, chief economist at CIBC Capital Markets, stated in a phone interview.

The financial accounts information launched Friday have been unhealthy throughout. Consumption spending grew on the slowest tempo in virtually 4 years, housing funding fell by probably the most in a decade, enterprise spending dropped sharply for a second straight quarter, and home demand posted its largest decline since 2015. The one factor that saved the nation’s economic system from contracting was a buildup in inventories as corporations stockpiled items — which doesn’t bode nicely for future progress.

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The query now’s what the weaker-than-expected information suggests concerning the economic system’s capacity to rebound to extra regular progress ranges. Most economists count on it would.

There are clear transitory components at play, such because the decline in oil costs on the finish of final 12 months and Alberta’s short-term manufacturing cuts. Costs for crude have recovered this 12 months, and the necessary curtailments are being dialed again.

One other factor giving policy-makers consolation is a strong jobs market, with employment up greater than 300,000 over the previous 12 months. A contraction in output — if there’s one — isn’t enough to be categorised as a recession with out job losses. For instance, Canada’s economic system shrank for 2 straight quarters in 2015 — what some name a “technical recession” — however the weak point wasn’t broad-based sufficient to be designated as recessionary.

Elephant Subsequent Door

The U.S. economic system, in the meantime, is doing nicely, with annualized progress of two.6 per cent within the fourth quarter, and that ought to proceed offering a raise to Canadian exports. Whereas progress charges within the two international locations can diverge in anyone quarter, Canada’s economic system often retains tempo with the American one over time. Canada hasn’t slipped right into a recession with out the U.S. additionally contracting since 1951.

Which is why most economists are nonetheless anticipating the present gentle patch will come to an finish this spring, with progress forecast to speed up nearer to 2 per cent for the remainder of the 12 months.

“There is no such thing as a denying that Canada is going through an ideal storm at current,” Brian DePratto, a senior economist at Toronto-Dominion Financial institution, stated in a report Friday on why an outright recession is unlikely. “It stays most definitely that the present hunch will give technique to a modest progress restoration within the second half of 2019,” he stated, whereas acknowledging a technical recession is a risk.

One impact from the slowdown will most likely be for the Financial institution of Canada — which has raised rates of interest 5 occasions since 2017 — to rethink additional hikes from right here, economists stated. This will assist to bolster confidence. Different causes to imagine underlying progress will stay strong embrace a latest acceleration in inhabitants, DePratto stated.

Nobody, nonetheless, anticipated the economic system would wish to come back again from such a low level.

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