Germany and UK's economy flirt with recession

Fears of a global economic downturn rose, as two of the world's export juggernauts, China and Germany, reported weak economic data. The news fanned worries about the health of the global economy amid escalating trade tensions.

On the Chinese side, new reports revealed the country's industrial growth in July ground down to its slowest pace since 2002, while the urban jobless rate reached its highest level since consistent record-keeping began. Economists say the figures are a sign the economic blow from the ongoing trade dispute between Washington and Beijing is hitting China harder than the U.S.

"Trump has claimed that China will be hurt more by the trade war than the U.S.," said Avery Shenfeld, chief economist at CIBC Capital Markets.

"And while it's a negative for both economies, he's right."

Meanwhile, Germany revealed its gross domestic product shrank by 0.1 per cent during the three months ending in June, a dip that has been widely linked to China's own economic cool-down.

"China is a major market for the German economy, so the slowing we're seeing in China and the slowing we've seen in Germany are part of the same story," Shenfeld said.

The U.K. economy also switched into reverse during the same period, while Italy has been dipping in and out of negative-growth territory, fuelling concerns that Europe is flirting with recession, usually defined as two consecutive three-month periods of contraction.

But to what extent do the dark clouds gathering overseas dim Canada's own economic horizon?

So far, the outlook is not as worrying as one might think, according to Shenfeld.

Canada's fortunes are closely tied to the performance of the U.S. economy, which has help up relatively well so far, he added.

While the trade spat with China is holding back business investment, "U.S. households are spending, the U.S. population isn't stagnant the way it is for many European countries and the U.S. recently passed a budget bill that will add to government spending in 2020," Shenfeld said.

The U.S. economy expanded by a solid 2.1 per cent between April and June, and the latest labour market reading showed the addition healthy 224,000 jobs in June.

Even with a southern neighbour still chugging along, Canada, with its heavy dependency on commodities exports, is not immune to what happens in the rest of the world.

The International Monetary Fund last month trimmed its global economic growth forecast to 3.2 per cent this year, the lowest rate in a decade.

"We are an exporting country, and the prices we get for our oil, our copper, our lumber are are very heavily tied to the pace of global growth," Shenfeld said. But that pace is still positive, he added.

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