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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.
Canada’s central bank says pace of GDP growth likely to pick up through rest of 2009
Kevin Carmichael – Globe and Mail
The evidence supporting a global economic recovery is gathering force faster than governments and economists were expecting.
Canada’s central bank said Thursday that the country’s gross domestic product likely will grow at a faster pace over the second half of 2009 than the 2.2% annualized rate it predicted in July.
Bank of Canada Governor Mark Carney’s revised outlook, based on an array of positive indicators ranging from rising consumer confidence to fresh demand for automobiles, was bolstered by government reports in Ottawa and Washington that showed North American trade sprang back to life in July.
Imports and exports jumped in both the United States and Canada, amid demand for automobiles, automotive parts, and energy, signalling that the $2-trillion (U.S.) that governments have pumped into the world economy to reverse the financial crisis is having the desired effect.
“Following a deep, synchronous recession, recent indicators point to the start of recovery in major economies, supported by aggressive policy stimulus and the stabilization of global financial markets,” the Bank of Canada, which demurred from making a new GDP forecast, said in its latest policy statement.
The North American trade figures were echoed in France, where the government said international shipments by the world’s sixth-largest exporter soared 9% in July. Stock markets in New York, Toronto, Sao Paulo, London and Frankfurt all rose on a general sentiment that a global recovery is afoot.
“Compared to where we were a few months ago, it should be celebrated,” Andrew Tilton, an economist at Goldman Sachs Group in New York, said of the mounting evidence that the world economy is mending quickly. “Momentum has turned in terms of growth.”
But the potential celebrants in the finance ministries and the central banks of the world’s major economies – who have demonstrated uncommon unity in fighting the financial crisis – are showing considerable restraint in claiming victory.
Instead, they are digging in to ensure they finish the job.
Despite faster growth, the Bank of Canada retained its extraordinary pledge to leave its benchmark lending rate at a record low of 0.25% until June, 2010, barring an unforeseen burst of inflation. Policy makers also warned that “persistent strength” in the Canadian dollar could derail the recovery by making Canadian exports less competitive.
In updating the Canadian government’s fiscal projections yesterday – which include a revised forecast for a budget deficit of $55.9-billion in the current fiscal year – the best Finance Minister Jim Flaherty said about the economy was that it is in the “early stages of a fragile recovery,” telling an audience in Victoria that he would push ahead with his stimulus program.
That cautionary note is echoing among policy makers around the globe.
U.S. Treasury Secretary Timothy Geithner said yesterday in Washington that the recovery would feature “more than the usual ups and downs” and that he would proceed carefully in unwinding the Obama administration’s stimulus measures.
Federal Reserve Bank of Atlanta president Dennis Lockhart predicted the rebound would be “lacklustre,” while Reserve Bank of New Zealand governor Alan Bollard said it would be “patchy.”
The reason for such wariness is to push back pressure to reverse spending programs that are piling up debt.
“When the economy is walking solely with the aid of fiscal and monetary crutches, it’s not advisable to whip them away,” said Axel Weber, Bundesbank president and European Central Bank council member, in Ploen, Germany.
The economic data isn’t universally strong. As the North American economy showed signs of life in July, Japanese machinery orders fell to a record low, a government report said yesterday. In Rome, new figures showed that Italian exports fell 3.7% in the second quarter.
A sense of confidence also was apparent in a survey of 1,153 of Royal LePage Real Estate Services Ltd.’s real estate agents. When asked if they thought the real estate market recovery was sustainable, 61 per cent said “yes”.
The number surprised Royal LePage’s chief executive, Phil Soper, who said he expected something closer to unrestrained enthusiasm among his agents because Canada’s housing market has rallied so strongly this summer.
“Clearly, there is a concern that interest rates are driving so much of the current strength that a change in policy could bring the current good times to an end rather abruptly,” Mr. Soper said in an interview. “This will be a steady, slow recovery.”