Canadian Manufacturing

Canada enters technical recession as economy shrinks in second-quarter

Though economy faced losses first five months of year, some consolation provided by June bounce-back



More exports and fewer imports eliminated a significant amount of Canada's trade deficit in June. PHOTO: abdallahh via Wikimedia Commons

Some positives remain as June numbers indicate possible recovery underway. Manufacturing output rose 0.4 per cent in June after falling in May. PHOTO: abdallahh via Wikimedia Commons

OTTAWA—Canada’s economy recoiled for the second-straight quarter of 2015 – knocking the country backwards into a technical recession, fresh Statistics Canada data revealed Tuesday.

The federal agency said real gross domestic product contracted at an annual pace of 0.5 per cent in the second quarter of the year, which followed a revised decline of 0.8 per cent during the first three months of 2015.

Statistics Canada says the first-quarter performance was weaker than originally estimated, forcing the agency to lower its GDP reading for the first three months of the year from an original estimate of 0.6 per cent.

On the positive side, there was evidence to suggest Canada’s economy began to bounce back in June as GDP grew by 0.5 per cent for the month after shrinking over five straight months.

That June increase was led by a 3.1-per-cent boost in natural resources extraction – the category’s first increase following seven consecutive months of decline.

The new batch of data is likely to add fuel to the heated, ongoing political debate over how best to respond to the weakened economy as parties battle for support ahead of the Oct. 19 federal election.

It is also expected to intensify the economic argument over the severity of the technical recession – recently defined by the federal government as two consecutive quarters of negative GDP.

Prime Minister Stephen Harper has side-stepped campaign-trail questions about whether Canada was in recession this year. On Monday, he also declined to define a recession when asked about it.

“I think it’s more important to describe the reality of the situation rather than to have labels,” said Harper, whose Conservative party has pinned its re-election hopes on its economic record.

The hobbled economy has so far shaped up to be the primary issue of the campaign – and Harper’s opponents have used his record as a bull’s-eye for their attacks.

Harper has reiterated a stay-the-course mantra, insisting the country must ride out external economic and market turbulence whipped up in places like China. He has argued the only domestic weakness has been in the energy sector, which has suffered from the steep slide in global oil prices.

The Tory leader has frequently cited forecasts that predict the economy will rebound in the second half of the year, including a projection by the Bank of Canada. The central bank, however, has downgraded its projections for 2015 and cut its trendsetting interest rate twice this year to cushion the blow of low crude prices.

Drilling deeper into the second-quarter data, natural resources extraction contracted by 4.5 per cent.

A considerable amount of growth in the quarter was found in household consumption at a time when interest rates remained low.

Exports also crept up in the second quarter by 0.1 per cent after contracting for two consecutive quarters.

Positive numbers in the June data suggest the expected turnaround could be underway.

On a monthly basis, Statistics Canada said manufacturing output rose by 0.4 per cent after contracting by 1.6 per cent in May.

The last time the economy contracted over two consecutive quarters was in 2009 during the Great Recession, when GDP pulled back by 8.7 per cent in the first quarter and 3.6 per cent in the second.

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