Canada’s economy shrank at an annualized rate of 0.5% in the second quarter, pushing the economy into a recession, StatisticsCanada data confirms.
But figures released Tuesday (September 1) show the nation’s real gross domestic product (GDP) increased 0.5% in the month of June, leading many economists to conclude the recession was short lived.
The federal government defines a recession as two consecutive quarters of negative growth of real GDP. Prior to the 0.5% decrease in Q2, Canada’s economy contracted by 0.8% in the first quarter in the wake of plummeting oil prices.
“Despite the weak start to the year, there is good reason to believe that the worst is over,” TD economist Brian DePratto said in an investors’ note.
“With today's numbers in hand, it now appears likely that we will see a sharp rebound in Q3, with growth expected to reach around 2.5% (annualized).”
This is the first time Canada has been in a recession since the 2008 financial crisis.
During the second quarter the U.S. economy grew 3.7%, which will likely bolster the Canadian economy and boost exports thanks to a weak loonie that was trading at US$0.76 Tuesday morning.
BMO chief economist Douglas Porter said in an investors’ note his bank would leave it to the official C.D. Howe Business Cycle committee to determine whether Canada has been in a recession during the first half of 2015.
“If this period is ultimately deemed to be a recession, it will be of the mildest variety and one of the strangest recessions ever,” he said, noting consumer spending and employment were up during both quarters — not typical signs of a recession.
While mining, and oil and gas extraction shrank 4.5% in Q2, much of the economic troubles were reflected in business development capital, which plunged 12%.
But by June, oil and gas managed to post gains, raising 3.1%.
The only caveat, according to StatsCan, was the growth was mainly attributable to non-conventional oil extraction. Conventional oil and gas extraction remained flat in June.
CIBC economist Avery Shenfeld said in note to investor’s based on the economic data coming, it appears the third quarter will be back into positive territory for the economy.
“But given the global growth challenges, there’s still plenty of uncertainty about how Q4 will shape up, so markets won’t get too comfortable that Canada is out of the woods just yet.”
