Something very curious is going on in Canada; nobody can agree whether or not the nation is in recession. Most economists reject the claim that the world’s 15th largest economy has entered a recession, but a few disagree.
Canada’s gross domestic product did fall over the course of 2015, dropping from around 3.5% in January to -.5% in October, which indicates that the economy did contract. Journalist David Madani of Capital Economics told The Toronto Globe & Mail in October that he thinks the country never escaped recession.
Despite that, Doug Porter, the Chief Economist at the Bank of Montreal, labeled the current situation, “The Best. Recession. Ever.” CNN Money discovered that many Canadian economists believe that the nation is in recession, but they seem to be optimistic about the situation.
Best Recession Ever
The economists were optimistic because the GDP contractions were small: .2% in the first quarter of 2015 and .1% in the second quarter. They also noted that the downturn was confined to the energy sector, which is responsible for around 28% of Canada’s gross domestic product.
Some other economic indicators in Canada actually defied the definition of a recession. Job growth was still very healthy, with 180,000 more jobs added to the economy between June 2014 and June 2015, Scotiabank reported. Despite that, there was a slight rise in the unemployment rate of around .5%.
Some experts think the job increases in Canada are being driven by the ongoing growth of the U.S. economy. Economic expansion in the United States could be making for some losses in the Canadian economy. Canadian exports to the U.S. were expected to grow in 2015 despite the downturn.
Is the U.S. Boosting Canada out of Recession?
The United States absorbs 73% of Canada’s exports, making it and not oil the primary driver of the nation’s economy. Around 63% of Canada’s imports come from the United States, which means a weak Canadian dollar can have a serious dampening effect on both nations’ economies.
The Canadian dollar was trading at a rate of $1.34 USD, which means that U.S. goods will cost more in Canada. A weak Canadian dollar can help some industries, including tourism and manufacturing. Some experts believe that a weaker dollar could lead to expansion in Canadian industry. This could explain the job growth despite two consecutive quarters of negative GDP in 2015.
One possible explanation is that manufacturing some services could now be cheaper in Canada, which encourages foreign investment in the country. Another is that more American firms are switching to Canadian suppliers because of the cheaper dollar and the lower cost of doing business.
So Is Canada Really in Recession?
Despite the signs of optimism, there are still some worrying signs in Canada’s economy. As in the United States, mass closings of retail stores have become a problem.
An entire chain of leather goods shops called Danier Leather, which operated 76 stores across Canada, is shutting down, City News reported. Sony also announced plans to close all 14 of the electronic stores it operates in Canada.
Last year the American discount giant Target shut down all 133 of the stores it had just opened in Canada. Another American chain, Best Buy, shut down all 66 of its Canadian stores last year.
It looks as if Canada might not be in recession, but Canadian retail certainly is. As in the United States, many retailers are struggling with declining sales as the economy expands. Overall retail sales in Canada fell by 1.7% in January 2015.
These numbers indicate that Canada is in a partial recession. The contraction in some sectors, notably energy, is balanced out by American-based growth elsewhere.
The Real Threat to Canada’s Economy: The USA
The real worry for Canadians should be a U.S. recession. Some American regions, including the oil producing states of Alaska and North Dakota, already entered recession last year. The good news for Canada is that those are small, relatively low population states that contribute little to the Canadian economy.
The real threat to Canada would be a general downturn in larger U.S. states, such as Texas or California, something that looks unlikely. Instead of a recession, it looks as if Canada’s economy will simply limp along with some job growth but no real expansion, much like that in the United States.
There is a bright side to Canada’s current predicament. Now is a very good time for Americans and Europeans to travel that nation because their buying power will be increased by the weak Canadian dollar. For travel-and tourist-related businesses in Canada, such as ski areas, this might really be the “Best Recession Ever.”
