Canada Not In Recession Says Finance Minister Even As Analysts Cite Shrinking GDP As A Concern

Despite reports that Canadian economy is shrinking, Canada’s minister claimed that the Canada is not slipping into recession and better growth is in sight later in 2015. Speaking at an event in Toronto, Finance Minister Joe Oliver said the economy has the resilience to avoid recession despite new data from Statistics Canada is showing that the GDP having contracted in each of the first four months of 2015, which can be construed as recession.

"First off, we're not in a recession," Oliver said and added "we don't believe we will be in a recession." Generally, recession is confirmed when two consecutive quarters of negative GDP growth takes place. The minister said it will be premature to say the country is in a recession because economic data for the entire January to June period is not there. He said the expectation is that solid growth will be there for the year after the weak first quarter.

Economic Slowdown

April's federal budget had raised expectations with its promise of the economy growing by two percent in 2015. So far the numbers show that the economy have shrunk by 0.6 percent in the first three months of 2015 and another 0.1 percent in April. The Finance Department's optimism seems detached from a universal view.

Bank of America economist Emanuella Enenajor in a report said the GDP report for April showed the economy shrank by 0.1 per cent and she wanted to revise expectations downward for the entire April to June quarter. "With a second straight quarterly GDP decline, Canada would technically be in a recession," Enenajor wrote. She expects the Bank of Canada to cut rates soon in July to head off any slowdown.

The analyst cited a major cause of concern-- dwindling number of Canadian factories. The manufacturing sector should have been doing better because loonie depreciated by 22 percent over the past two years and must have cheered exporters. But that was not the case and there are fewer than 54,000 factories, a figure steadily inching lower since the recession in 2009. “Factories are critical for Canada's economic growth, as stronger non-energy exports are critical for an expansion of Canada's tapped-out highly levered economy," Enenajor said. Weak factory data suggests that Canada's economy failed to rebound in the second half belying the hopes of Bank of Canada and the Department of Finance.

CIBC economist Andrew Grantham said surprise contraction in April GDP will leave open the probability that the second quarter could be negative, which would technically put the economy in recession mode. However, one prominent economist concurred with minister Oliver's view recession is premature. "A recession is a sustained, broad-based decline in economic activity," said BMO economist Doug Porter. Canada simply does not meet that test. The bigger picture is consistent with a sluggish economy, not one of recession, he added.

Rate Cut Imminent

Meanwhile, Toronto-Dominion Bank expressed concern that a recession is in the offing, saying “balance of probabilities” is tipping in favour of another quarter-point rate cut in mid July. “It is likely the economy was in recession in the first half of the year,” thanks to the damage from a collapse in oil and commodity prices that has persisted since 2014, senior economist Randall Bartlett said in a note.

(For feedback/comments, contact the writer at k.kumar@ibtimes.com.au)