It is frequently remarked that Canada fared “relatively” well during the economic and financial crisis. And it is also frequently remarked that current and projected short-term Canadian economic growth rates are relatively weak. Both statements are true. But it’s important to make the distinction between the level of economic activity and its growth rate. An economy that is still climbing out of recession has a lot more room to grow than an economy that has already fully recovered.
We’re used to measuring ourselves up against the U.S. economy, and sometimes the other G7 countries, but what about a broader comparison?
The chart below plots OECD countries plus Brazil and Russia along two dimensions:
- Depth of recession: The percentage loss in GDP from its pre-recession peak to its trough.
- Strength of recovery: The percentage change in GDP from the pre-recession peak to the last quarter of 2012. (Negative values indicate an economy that has yet to recover output lost during the recession.)
(Click on the graph to see a larger version.)
(N.B.: Greece is not plotted because the OECD doesn’t have Greek GDP data through 2012.)
As you can see, the Canadian recession was indeed less severe than that of the other G7 countries, and it has had the strongest recovery. There are six countries where the fall in GDP was less than in Canada: Poland, Australia, Israel, Chile, New Zealand and Switzerland. And there are eight countries with stronger recoveries than Canada’s: Chile, Israel, Turkey, Poland, Korea, Australia, Brazil and New Zealand. Putting the two together, five countries — Chile, Israel, Poland, Australia and New Zealand — had both weaker recessions and stronger recoveries than Canada.
The most surprising (to me) country in that graph is Poland, which never had a recession to speak of, and has been growing remarkably quickly. Part of the explanation must be that although it has joined the EU, Poland has yet to adopt the euro. As a new member, it is obliged to abandon the zloty at some point, although a date does not yet seem to have been set. I suspect that the Poles aren’t in any hurry to join the eurozone, and will drag out the transition just as long as it can.
I’ve already made the point that, in many ways, Australia is a more natural point of reference than the U.S. for the Canadian economy: it’s another significant resource exporter with flexible exchange rates. New Zealand and Chile also fall in that category, and they’ve also done well. I would have thought that Norway would have also done better than Canada, but its recovery has been sluggish. It would appear that just as the slow U.S. recovery has held Canada back, the even slower European recovery is making it harder for Norway to come back.