Finance headlines have touted news of a recession all year – could we now be in for a turnaround? Canada’s economy grew in July by 0.3 per cent following a 0.4 per cent rise in June. The real Gross Domestic Product (GDP) data from Statistics Canada comes after five consecutive months of decline. It also tells us if Canada was in a technical recession at the beginning of the year, (which is defined as two straight quarters of negative GDP) then it’s now probably behind us.
GDP Supported by Key Sectors
The growth in Canada’s economy in July was led by mining, quarrying, and oil and gas extraction, manufacturing, and the finance and insurance sector – largely the sectors that dragged the economy at the beginning of 2015. Even better news; output also grew by 0.8 per cent in July after a 0.7 per cent increase in June. In his note on the GDP data, Benjamin Reitzes, senior economist at BMO Capital Markets wrote, “The back-to-back gains in GDP suggest that the economy rebounded firmly from the very weak first half of 2015.”
Recession or Not?
Every indication is GDP data for the third quarter has snapped a two quarter losing streak for the economy. Reitzes says, “Q3 GDP growth is tracking in the 2.5 per cent-to-3 per cent range,” which is much better than what economists and The Bank of Canada had forecasted. He adds that despite uncertainty on whether this momentum can be maintained into Q4, there’s no reason here for Governor Stephen Poloz to consider further easing or lowering rates at the moment.
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Biggest Losers in July
The sectors that saw the biggest declines were the arts and entertainment sector. It declined by 1.9 per cent following a whopping a 6.8 increase in June. To put into perspective, the increase in June was due in large part to the FIFA Women’s Soccer World Cup hosted by Canada and the Pan-American games held in Toronto. While the games were held in July,much of the spending would have occurred before then with ticket sales and hotel rooms being paid for in advance. Construction also edged down, engineering, repair and residential building construction fell and wholesale trade also fell by 0.4 per cent in July.
What This Means for the Rest of 2015
If Canada’s economy did grow between July to September, then we are no longer in a technical recession. But there is some data that could derail the good news; unemployment rose in August, which does not bode well for GDP as those making little money tend to spend little as well. It also means low rates and cheap money are here for at least the remainder of 2015. Canadians looking to pay off debt and stay ahead of a rate hike should continue to do so, because two months of increased GDP doesn’t mean Canada’s economy is headed into a period of stronger growth. It could, just like many are calling the “technical” recession, be a blip in a larger story of Canada’s economy slowing down.