How Canada Squares Up
By Richard Blackwell – Globe and Mail
The growth may have be meagre, but the 0.4% annualized increase in GDP in the third quarter marked the first rise since the third quarter of 2008. That means, at least by the classic definition, that Canada is out of recession.
At one point, early in 2009, there were fears the downturn might spiral into a lengthy worldwide depression, with a contagion taking the global financial sector down the drain. That didn’t happen, and it is now possible to begin to examine how Canada fared compared with the rest of the world, and relative to previous recessions.
VERSUS EARLIER RECESSIONS
Of the Canadian recessions in the early 1980s and early 1990s, the first was by far the deepest and longest, lasting six quarters. Unemployment spiked to the 13% level.
The 1990s recession lasted four quarters and was about as severe as the one just ended, when measured by the shrinkage of the economy. But unemployment rose as high as 12% and it took a long time for the job market to recover.
This time Canada caught the recession flu from outside, mainly from the United States, and the country was in good shape with a significant federal budget surplus and solid financial institutions. As the recession took hold, quick interest rate cuts and huge stimulus helped turned the tide.
“It wasn’t primarily our fault, and we were fairly well prepared,” said University of Toronto economics professor Peter Dungan.
One reason for the relatively better performance on the jobless front in this recession, he said, is that in the 1980s and 1990s the labour force was growing much more quickly. Higher population growth, and the shift of women and baby boomers into the labour force exacerbated unemployment problems in those days.
Economist Dale Orr points out that it is not clear if the job market in Canada will recover quickly this time. Even though the economy is growing again, signs of employment picking up are still tentative.
“We’re still not home free with respect to employment, so maybe we should not jump to conclusions yet,” he said. Some important sectors – such as automotive manufacturing or forestry – are undergoing structural shifts and jobs in those industries may never return to earlier levels.
COMPARED WITH OTHER COUNTRIES
Canada’s downturn has been about as deep as that in the United States, and lasted roughly the same length of time. One key difference is that the U.S. has seen unemployment numbers jump much more sharply than here.
The credit crunch in the U.S. was worse than in Canada, Mr. Dungan noted, forcing corporations to make more severe job cuts. Housing and real estate problems were also more severe south of the border.
Compared with other countries around the world, Canada is somewhere in the middle of the pack.
Japan and much of the euro zone experienced more severe recessions, said Toronto-Dominion Bank senior economist Richard Kelly, although some of those countries are bouncing back quickly now. Few industrialized countries have actually outperformed Canada, with the exception of Australia, which has already recovered enough to increase interest rates.
The burgeoning economies of India and China slowed during the recession, but still managed to grow at levels that would make much of the world green with envy. China, for example will likely see its economy expand by 8% in 2009, according to the Organization for Economic Co-operation and Development.
This recession was unusual, compared with earlier ones, in that every province showed a decline in GDP, Mr. Orr said. “In a lot of other years when Canada’s growth was negative, there was usually some province that wasn’t negative.”
Still, the reasons for the recession weren’t the same in every province. Ontario was hit by a downturn in the auto sector, Alberta was hammered by lower oil prices, while demand for B.C.’s forestry products slumped.
Quebec, which was battered in earlier recessions, fared slightly better this time because its aerospace industry held up better than auto manufacturing.
One common factor that damaged all provinces was the credit crunch, Mr. Orr said. That hurt businesses of every type and contributed to the decline in the housing market across the country.