GDP falls for the fifth month
Economists expected no change; mining and quarrying also down
The latest numbers showing Canada’s GDP fell again in May, for the fifth month in a row, and have economists fearing the country is already technically in recession.
“There is no sugar-coating this one,” said BMO chief economist Douglas Porter. “It’s a sour result.”
That’s because economists had been expecting no change in GDP for May, but instead Statistics Canada reported Friday that real gross domestic product fell 0.2 per cent. Manufacturing output dropped by 1.7 per cent, after no growth in April, while mining, quarrying and oil and gas extraction shrank by 0.7 per cent, down for the seventh consecutive month.
“There is no sugar-coating this one. It’s a sour result.” DOUGLAS PORTER BMO CHIEF ECONOMIST
David Madani, Canada economist with Capital Economics, said in a note that with oil prices slumping again, and energy producers announcing additional job and spending cuts, “economic conditions appear to be going from bad to worse.”
BMO’s Porter had been more optimistic about the economy, given that other indicators have been performing well, including home and auto sales, as well as almost 100,000 net new jobs added in the first half of the year.
“We were disappointed,” he said. “We thought that some of the strength that we saw in areas like retail spending and homebuilding would be enough to keep the economy at least flat for the month,” he said in an interview.
“Instead, we saw the fifth straight monthly decline,” Porter said. “Perhaps what is a little troubling this time is we can’t just point to the oil and gas industry, which was weak again. But the weakness fanned out to other industries.”
That included the public sector such as education and health care, which fell by 0.1 per cent, which Porter believes could just be a blip, possibly linked to high school teacher strikes.
“But it just adds to the downbeat tone of this report,” he said.
If there is a bright spot, it’s that Ontario is faring better. “I don’t believe Ontario is in recession. I have no problem believing Alberta is in recession,” he said.
A recession is defined as two quarters of negative growth, but some economists have argued that the country isn’t showing traditional signs of a recession, given job growth and the stable employment rate.
Porter emphasized that two quarterly declines does not automatically equal recession, adding he still expects to see modest growth in the second half of the year.
“Having said that, if things remain as weak as they were in May, then we could change our tune,” he said, insisting Canada is not in recession yet, but said May’s numbers have “moved us closer.”
However, Porter fears that too much talk about recession could be- come a self-fulfilling prophecy, where businesses decide not to invest in new projects or hiring.
The disappointing GDP results comes as Prime Minister Stephen Harper is expected to kick off the federal election this weekend, which will make the economy front and centre on the campaign trail. “I’m sure today’s news will not be welcomed by the government,” Porter said.
Jim Stanford, an economist for Unifor, the country’s largest private sector union, called the GDP report “dismal and ugly.”
Stanford believes the country is already in recession, noting it’s the fifth consecutive month of decline. “That doesn’t happen without a recession,” he said, adding what’s worse is the weakness in the oil and gas sector, is spreading to other sectors including manufacturing and the public service.
“It’s looking less like a bad shock in one sector, and more like a broadly based downturn,” he said.
Unlike the financial crisis of 2008, which was part of a global recession, Stanford said so far this one is not remotely as bad.