Canada slides into recession

published 3 September 2015

Canada's GDP shrunk at an annualised 0.5% rate in the second quarter, after a 0.8% fall in the first so the country is now technically in recession. Slumping commodity prices have hit exports and capital expenditure: business investment fell by 8% in the second quarter after a 10.9% drop in the first. But the worst of the downturn is now expected to be over. The Bank of Canada still foresees a 1.1% expansion for 2015 as a whole.

What the commentators said

The commodities boom kept it going, but it also lifted the Canadian dollar, or loonie, to levels that began to damage domestic industries by deterring foreign investment and undermining

exports. A fall in the loonie is usually an opportunity to "strike up the band" in the manufacturing sector, as Fiat Chrysler's Canadian CEO Reid Bigland told Reuters. "Unfortunately the [loonie] has been so strong for so long that a lot of the band has left." Last year Canada attracted only $750m of investment from carmakers, compared to $10bn in the US and $7bn in Mexico, according to the Center for Automotive Research. In the meantime, "the only thing that has kept Canada from a full-blown recession is a US-style housing bubble", said the FT.

Subscribe to MoneyWeek

Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE

Get 6 issues free

https://cdn.mos.cms.futurecdn.net/flexiimages/mw70aro6gl1676370748.jpg

Sign up to Money Morning

Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter

In recent months, households have been dipping into their savings, as Kiran Rana said in Canada's Globe and Mail. Household debt as a proportion of disposable income is at a record high of 165%. With house prices overvalued by up to 30%, said the Bank of Canada, the economy looks unusually vulnerable to higher interest rates, suggesting consumption and growth are unlikely to rise very fast from here. The next prime minister faces an unenviable legacy.

Andrew is the editor of MoneyWeek magazine. He grew up in Vienna and studied at the University of St Andrews, where he gained a first-class MA in geography & international relations.

After graduating he began to contribute to the foreign page of The Week and soon afterwards joined MoneyWeek at its inception in October 2000. He helped Merryn Somerset Webb establish it as Britain’s best-selling financial magazine, contributing to every section of the publication and specialising in macroeconomics and stockmarkets, before going part-time.

His freelance projects have included a 2009 relaunch of The Pharma Letter, where he covered corporate news and political developments in the German pharmaceuticals market for two years, and a multiyear stint as deputy editor of the Barclays account at Redwood, a marketing agency.

Andrew has been editing MoneyWeek since 2018, and continues to specialise in investment and news in German-speaking countries owing to his fluent command of the language.