An interview with the C.D. Howe Institute’s economist
Minister of Finance Joe Oliver delivers the federal budget in the House of Common on Parliament Hill in Ottawa on Tuesday, April 21, 2015. THE CANADIAN PRESS/Adrian Wyld
Finance Minister Joe Oliver’s insistence that Canada was not in a recession early this year has put the issue back into the election news cycle. And with Statistics Canada slated to release the latest anxiously awaited data on Canada’s gross domestic product on Sept. 30, the issue of the real state of the economy seems bound to remain a campaign-trail debating point next week. In an attempt to clear some of the fog of campaign rhetoric on how economists actually use the R word, and what it really signifies, I called Craig Alexander, the C. D. Howe Institute’s vice president, economic analysis. I’ve edited our conversation for brevity.
A: The question is how much weight you put on the old rule of thumb that two quarters back-to-back of contraction is a recession. That’s just guideline that economists use because they want to simplify it when they are discussing the matter. But the reality is that the contraction in the second quarter of this year—it was minus 0.1 per cent—was so small that you don’t have confidence that a recession took place. Most economists would say it wasn’t a recession.
A: There has to be a meaningful and deep decline in economic activity. It has to last for a significant length of time. It has to be weakness spread broadly through the economy; it can’t be concentrated just in one industry.
A: First of all, was it deep enough? In the first quarter there was a modest decline; it wasn’t huge, but it was measurable. The second quarter [contraction] was very small. In fact, it could easily be revised away: Statistics Canada will revise the number four times before it becomes final. Then you have the issues of how diffused it was throughout the economy. An awful lot of it was in the energy sector.
A: It plays into the election because of the way politicians are using it to achieve their goals, or communicate to the electorate. But from the point of view of the average Canadian, it doesn’t matter. What you know is the Canadian economy effectively didn’t grow in the first half of this year.
We actually haven’t seen the decline in employment that you typically would see in a recession, but from the point of view of the average Canadian, they know in parts of the country it’s hard to get a job. If you’re living in Alberta today, you don’t really care about this debate over whether there’s a recession or not; you know the Alberta economy is contracting and labour market conditions in Alberta have weakened a lot.
A: In light of the data we’ve had, they probably regret having tied the legislation to the wording of technical recession, which, as I’ve said, is purely a rule of thumb.
A: Look, what’s happened is a rarity. When you’re in a recession, there’s usually no debate about it. You go back to 2008, the economy was contracting very rapidly in the fourth quarter of that year—even before we had the data out, everybody knew we were in a recession. You go back to 1990-91 recession, which was actually far deeper, people knew they were in a recession. Trust me, they didn’t need Statistics Canada to tell them.