back to top

Canada Is Officially In A Recession. What Does That Mean?

Nobody freak out.

Posted on

Statistics Canada just released new figures on how the Canadian economy did in the second quarter of the year.

The new figures, released Tuesday, show that gross domestic product (GDP) went down by 0.1% from April to June. This follows a 0.2% decrease in GDP in the first quarter of 2015.

Two straight quarters of decline officially puts Canada's economy in recession.

But WTF does any of that mean?

Mowat Centre / Via mowatcentre.ca

How bad are things? Should you be freaking out? To answer those questions, BuzzFeed Canada enlisted economist Mike Moffatt to break things down for us verrryy slooowwly.

Moffatt is an assistant professor at the University of Western Ontario's Ivey School of Business, chief economist at the Mowat Centre public policy think tank, and the former head coach of Canada's national men's dodgeball team.

(This interview has been condensed and edited for clarity.)

What is a recession and how do you measure it?

Thinkstock

There are two definitions of a recession.

The first, the simplest one, is two consecutive quarters of economic decline. Two calendar quarters where the economy produced less than the quarter before.

The second definition looks at a decline in general economic activity. So that takes into account not just GDP but also employment, retail sales, a whole host of different indicators, and uses that to make a call about whether there's a recession or not.

The nice thing about that definition is that because it's more broad-based, you get a better idea of what's happening with the economy. The downside is that because it's more subjective, it's a bit like how the U.S. Supreme Court defined pornography: It's a recession if it looks like a recession.

Advertisement

How bad is it? Should we be freaking out?

Giphy / Via giphy.com

I don’t think we should be freaking out. A recession is sort of an arbitrary line. You either have a recession or you don’t, but there’s a lot that doesn’t tell you.

The economy is still weak. Even if we didn’t have a recession today, we still would have had a weak economy. The fact that we’re “in recession” doesn’t tell us very much, like how severe it is.

We’re not in a Great Depression type of scenario; we’re not even in what we had in 2008–2009. So yes, the economy is weak right now, but we have to keep in perspective that not all recessions are the same.

Is this because of oil?

Associated Press

Largely, yes. Oil is the primary driver of this, oil prices, but also the wildfires we had in northern Alberta that led to a lot of oil production shutting down.

The second part is manufacturing. We've had very weak manufacturing numbers over the last eight months. Some of that's due directly to oil and gas, and some of that is due to large portions of the U.S. having had a rough winter and just importing less stuff. And we've also had some plant shutdowns, most notably Chrysler in Windsor, that shut down for a few months and affected not only their production but all the parts suppliers that produce for that plant.

This is going to be a big part of the federal election campaign, but what does being in recession actually mean for the average person, the average voter?

Adrian Wyld / The Canadian Press

It confirms a lot of what the average voter knew. The overall economy is not performing well, that it is mostly driven by oil and gas. Alberta, Newfoundland and Labrador, and to a lesser extent Saskatchewan, are struggling right now. … So it mostly confirms what people already knew: that the economy is performing slowly and there are reasons to be concerned.

People will mostly notice it in the exchange rate. The Canadian dollar has fallen substantially, which makes it more expensive to go cross-border shopping or take a vacation in the U.S.

Does this affect the price of anything in Canada, though?

Associated Press

The one thing it would certainly affect is groceries. Strawberries, apples, whatever you're importing from the United States, has gotten more expensive over the last seven or eight months because of that decline in the Canadian dollar.

It has also gotten really expensive to import equipment and machinery. Business investment has taken a huge hit. Businesses across the economy have not been investing in new equipment and machinery because it's just gotten too expensive to import that stuff from the U.S. or Japan or wherever.

Advertisement

Ishmael N. Daro is a reporter for BuzzFeed News and is based in Toronto. PGP fingerprint: 5A1D 9099 3497 DA4B

Contact Ishmael N. Daro at ishmael.daro@buzzfeed.com.

Got a confidential tip? Submit it here.