Thursday, July 23, 2009 5 comments ++[ CLICK TO COMMENT ]++

Bank of Canada: Recession over

From The Globe & Mail:

Canada's recession is over, and the country is beginning what will be a long reconstruction of the wealth destroyed by the financial crisis, the Bank of Canada said Thursday.

Gross domestic product will expand at an annual rate of 1.3 per cent this quarter, compared with an earlier forecast for a contraction of 1 per cent between July and September, the central bank said in its latest monetary policy report.

The dramatic shift is the result of stronger financial conditions, surprisingly high consumer and business confidence and a first-half contraction that was less severe than the economic catastrophe the central bank was bracing for when it last published its views on the economy in April.

If the bank's new forecast proves correct, Canada's first recession since the early 1990s lasted three quarters, making it one of the shortest downturns on record.

This would be a pretty short recession in Canada. Unlike USA and most of Europe, Canada avoided any serious collapse in the financial sector. The resource sector also has held up relatively well (even though foreign resource demand collapsed, the fact that the Canadian dollar also fell sharply probably mitigated the damage.) However, Central Canada, which is where I am, suffered terribly and will continue to do so for a while. Ontario and Quebec, two major central provinces, depend on manufacturing. Ontario, in particular, saw its auto sector decimated and its manufacturing sector collapse (this has been going on for the last 5 years but it hit a peak late last year.)


5 Response to Bank of Canada: Recession over

Daniel M. Ryan
July 24, 2009 at 12:50 AM

It's hard not to say that we Canadians, in the entirety, were lucky. If I recall correctly, the mid-'70s recession was much less severe for Canada than it was for the States.

Of course, that's no consolation to residents of Windsor or Orillia. Nor will it be much consolation to the rest of us if the next "big one" coincides with a long-term collapse in commodities prices.

Sivaram Velauthapillai
July 24, 2009 at 10:02 AM

I think Canada is going to face a difficult period going forward. The two core provinces, Ontario and Quebec, face long-term structural problems. Manufacturing was critical for so long but it seems that a big chunk of it can't compete anymore (either against cheaper Asian and other manufacturers, or cheaper areas within North America--Southern US for instance). Provinces like Ontario aren't in good fiscal shape either so things are going to be painful.

The Prairie provinces will contribute a lot due to their resource and agriculture, two sectors likely to do ok, but there are two problems with that. One, they are just way too small. The other is that they are all cyclical. If the commodities boom ended then they can't help the rest of Canada.

In contrast, one of the huge benefits USA has is that they are very diversified. They have a big technology sector; sizeable healthcare; entertainment; and so on...

arizona insurance
July 25, 2009 at 4:53 PM

I am very glad our neighbors to the north are recovering. I am concerned it will take the U.S. much longer due to the mismanagement of our government with taxpayer money.

Sivaram Velauthapillai
July 26, 2009 at 1:06 AM

Thanks for the kind words and good luck with your insurance business. I know Arizona had a huge housing bubble and I'm not sure how big that was compared to the rest of your economy, but hopefully things have hit a bottom.

I think you guys will be fine and I'm not so concerned with with the government actions. The fact of the matter is that some of what is happening was inevitable. Americans (Canadians too!) need to lower their debt and build up savings. Regardless of what the government does, this process will be painful and take a while...

BC real estate blog
July 31, 2009 at 4:59 PM

Even though this is fantastic, the consequences of the recession might be tough. It will take time to recover, and the strong Canadian dollar could apparently slow down the recovery quite significantly. Hopefully it (the recovery) won't last long, but it is hard to predict now. Regards, Jay.

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