Canadian Recession Getting Worse

March 23, 2009

Canadian real GDP dropped 3.4% at a seasonally adjusted annual rate (saar) last quarter.  That was the second negative quarter of 2008.  GDP had fallen 0.9% saar in the first quarter, and in between there were tiny positive growth readings of 0.6% saar in 2Q and 0.9% saar in the third quarter.  GDP increased only 0.5% in calendar 2008, and the first quarter of 2009 will be the sixth consecutive quarter in which real growth will be weaker than 1.0%.

Canadian productivity contracted in four of the past five reported quarters, including a drop of 0.5% last quarter.  In calendar 2008, productivity fell for the first time in a dozen years, posting a decline of 1.1%.  Unit labor costs expressed in U.S. dollar terms to facilitate comparisons with Canada’s dominant trading partner, increased 5.7% last year.  U.S. productivity and unit labor costs went up 2.7% and 0.9% in 2008.  During the five calendar years to and including 2008, productivity rose only a third a quickly in Canada (0.7% per annum) as in the United States (2.0% per annum), and unit labor growth soared 9.4% per annum, some five times faster than in the United States.  Canada’s loss of relative price competitiveness was exacerbated by C-dollar appreciation earlier this decade.

The news for Canada gets worse.  The index of leading economic indicators fell 1.1% in February after a drop of 0.9% in January.  The average 1.0% per month decline in the first two months of 2009 compares with a mean decline of 0.6% per month in 4Q08 and no change in the leading index on average during 3Q08.  This deterioration suggests that the Canadian business cycle has not yet hit an inflection point.  Not only is the recession persisting, but the rate of contraction in 1Q09 and possibly next quarter too will be steeper than the 3.4% annualized slide last quarter.

Copyright 2009 Larry Greenberg.  All rights reserved.  No secondary distribution without express permission.



One Response to “Canadian Recession Getting Worse”

  1. David Mooers says:

    Good article Greenberg. It’s true, it’s not looking too good for the next couple of years, but you wouldn’t really know it by the way some Canadians are speaking and acting.
    However funny it may be, a poll by Virgin Mobie suggests that we are only mederately worried about the economic downturn.