Fear and loathing in the Canadian economy

Canada’s economy is at a crucial juncture, one that will determine whether this will be a short, shallow recession, or something deeper and longer-lasting


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There are a lot of things the Harper government thinks Canadians should be fearful of: homegrown terrorism, marauding gangs of thugs, Justin Trudeau. There is one threat, however, the government is adamant we not worry about: the R word.

The question of whether Canada will tumble into recession dogs Finance Minister Joe Oliver wherever he goes these days, yet his response has been bullishly consistent: “We’re not in a recession,” he assured us the other day. “We expect solid growth for the year.”

If he says so. Instead, many private sector economists now believe Canada is already in recession—defined as two back-to-back quarters of declining growth. We know the economy shrank through each of the first four months of the year. And while we won’t have a definitive answer from Statistics Canada about the second quarter until September, GDP growth will have to have been robust in May and June—defying evidence to the contrary—for Canada to dodge the bullet.

Macquarie recession chart

So, accepting that we are likely already in recession, the question becomes: How bad could it get? Canada’s economy is at a crucial juncture, one that will determine whether this will be a short, shallow contraction, or something deeper and longer-lasting.

It comes down to psychology. Fear of a recession can easily become self-fulfilling. If households, businesses and investors feel the outlook for the economy is darkening, they’re likely to tighten their belts. That means consumers make fewer purchase, such as homes and cars, and forgo vacations and meals out. It means less financing for entrepreneurs. It means businesses cut back on purchases of machinery and even on hiring. (This week, a Statistics Canada survey revealed that companies are slashing their capital-spending plans for 2015, the first decline since 2009.) All these decisions to hunker down have a debilitating effect on economic activity.

So far, the standard measures of consumer confidence are holding up. The Bloomberg Nanos Canadian Confidence Index, for instance, continues to hover near its 2015 high. But at the same time, Canadians have a hunger for information about the recession right now, suggesting that fear of a downturn is real and mounting. That’s clear from this chart, which shows the frequency with which Canadians are suddenly googling the word “recession.” (Click image to open full size.)


(And here’s the Google Trends interactive chart.)

The search engine’s trend tool (which measures interest in search terms relative to their all-time peaks) is an excellent gauge of what’s on people’s minds, and the recent spike in “recession” searches may be an indicator of what’s to come. (Sidenote: A similar spike in January 2008 coincided with the start of the U.S. recession, yet, at the time, bankers, politicians and many economists were still claiming a recession could be avoided.)

This isn’t to say there’s a straight line between fear and recession. If that were the case, the U.S. would surely have suffered another bout in 2011. Anxiety was high and recession warnings abounded. Standard & Poor’s had cut America’s credit rating in the face of rising deficits and slowing growth, the spreading sovereign debt crisis dominated headlines, and Americans were losing faith in their country’s ability to recover. But, in the end, the U.S. economy powered through. (Another sidenote: Even in 2011 when U.S. recession forecasts were rampant, Americans weren’t as focussed on the R-word as Canadians are now.)

Yet there are huge differences between the U.S. then and Canada now, and they don’t bode well for us. Manufactured political crises such as the debt-ceiling debates heightened American uncertainty at the time, and masked genuine improvements. Yet, in Canada, the oil crash that began in mid-2014 and—after a three-month respite—has resumed its plunge in recent weeks, poses a real and ongoing threat to our resource-heavy economy.

WTI 2015

Meanwhile, non-energy exports, which were supposed to save our Canadian bacon, have crumpled.

U.S. households and businesses had also made real progress repairing their shattered balance sheets. Canadian consumers, by contrast, are maxed out. Our economy, with its overreliance on household consumption, has been living on borrowed time and money. Even if the Bank of Canada cuts rates next week, as many expect, the effect will be muted.

When FDR uttered his famous line in 1933 that Americans had nothing to fear but fear itself, the country was in the depth of the Great Depression, seized by “nameless, unreasoning, unjustified terror.” There truly was nowhere to go but up. The same can’t be said of Canada, with its teetering housing market and record household debt levels.

Canadians are right to be afraid of a recession. But that fear is also likely to make things even worse.


Fear and loathing in the Canadian economy

  1. Ontario Lieberal policies and actions, low oil prices, new NDP government in Alberta, China slowing, etc.

    Many factors involved, now we have media trying to manufacture one more, borders on treason.

    • ‘The strong, stable Harper economy!’
      ‘What, another recession?’
      ‘Uh… the Liberal, NDP, Chinese, global economy!’


    • Yup, the whole recession myth has been made up by the media, who colluded to concoct every authoritative source they quote in support of their malicious fabrication.


      • Failed reading comprehension or graduated from the leftist everyone passes feel good school system?

        • Typical mindless Con rejoinder. Blame all Harper’s failures on external factors, the opposition, other levels of government, even the media. If challenged, respond with witless ad hominem attacks.

          I’ll take my “leftist” education over the “it’s everybody else’s fault, not ours” litany of feeble excuses to which you seem to resort (in the absence of any evident learning, leftist or otherwise).

          • Witless dog, global factors at work here, what policy of the Canadian government has caused world oil and commodity prices to drop?

        • So that’s how you made it to adulthood without knowing what compound modifiers are or how to write them.
          Sorry the system failed you, Bob.

          • Math is hard for clams.

          • Sure Bob, tell us all about it.

          • The International Monetary Fund lowered its forecast for global economic growth in 2015, and called on Tuesday for governments and central banks to pursue accommodative monetary policies and structural reforms to support growth.

            Global growth is projected at 3.5 percent for 2015 and 3.7 percent for 2016, the IMF said in its latest World Economic Outlook report, lowering its forecast by 0.3 percentage points for both years.

            “New factors supporting growth, lower oil prices, but also depreciation of euro and yen, are more than offset by persistent negative forces, including the lingering legacies of the crisis and lower potential growth in many countries,” Olivier Blanchard, the IMF’s chief economist, said in a statement.

            The IMF advised advanced economies to maintain accommodative monetary policies to avoid increasing real interest rates as cheaper oil heightens the risk of deflation.

          • the above from Reuters

  2. Statistics Canada said earlier Tuesday that exports declined 0.6 per cent in May to $42 billion, while imports edged up 0.2 per cent to $45.3 billion.

    Economists had expected a deficit of $2.5 billion, according to Thomson Reuters.

    Statistics Canada said export volumes decreased 2.5 per cent while prices increased 1.9 per cent. Meanwhile, import volumes were up 0.3 per cent and prices edged down 0.1 per cent.

    “All told, the weakness in volumes on the export front will have markets worried about May GDP, although we still expect better news from other categories like retailing,” CIBC chief economist Avery Shenfeld said.

  3. Now I know why Canadians got stuck with a conflict in Iraq, it’s called Harpers plan B to winning an election, if the economy fails us boys, at least we have a war to fight. It’s called smoke and mirrors. If this government is as astute as most talking heads like to give them credit for, they saw this recession coming, they have all the inside track, and they new that if they didn’t have something to scare people into electing them in October, they wouldn’t get re-elected on the mess they have presently made of our economy. And now they have the gonads to say to the public and say, we don’t need to elect a new government, we need a steady hand at the tiller, well, if these guy are going all out to shut down the media, then if they are re-elected, Canada is going to be in for quit the ride. A steady hand at the tiller wouldn’t have us in this kind of shape today, that’s why we need to replace this over lavished, and over spending top down Harper one man show government. The NDP have very little economy credentials as well, so that leaves the dippers with a one man show too. Where is the foreign policy heft in the NDP, who’s qualified enough in the NDP party to make judgements about how this conflict over seas is to unfold or fold, like the dippers want. Tom Mulcair has no Military experience or even a qualified general to turn to for advise, and Canadians want to give him the keys to Stornoway. That will be a very scary scenario for sure.

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