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What Great Recession? Canada Averted Long, Deep Slump

Canada’s recession was one of the country’s shortest since World War II, and less severe than the two previous slumps, Statistics Canada said today.

“In some countries, the severity and the length of the contraction earned it the moniker of ‘The Great Recession,’” Philip Cross, who tracks the country’s business cycles for Statistics Canada, said in a report. “Canada, in contrast, experienced a recession that was less severe.”

Canada’s economy, which started contracting in the fourth quarter of 2008, emerged from its slump by the third quarter of 2009, Statistics Canada said in the report. Output fell 3.3 percent over that time, less than in the 1990-92 and 1980-81 recessions, the Ottawa-based statistics agency said. Job losses were fewer and the unemployment rate rose by less, it said.

Even as the rest of the world struggled with the effects of the global credit crisis, Canada benefited from its relatively better fiscal situation and strong corporate balance sheets, the report said. The quick rebound is leading some investors to bet the Bank of Canada will soon raise its benchmark lending rate, which Governor Mark Carney cut to a record low last year.

The report provides “further evidence that the Bank of Canada will likely start to hike rates relatively soon, especially since they remain at emergency rate levels,” Scotia Capital economists Derek Holt and Karen Cordes Woods said in a note to investors.

Rates Rising

Six-month overnight index swap rates, a measure of the average overnight interest rate expected by investors during that time, touched 0.583 percent today, the highest level since February 2009, and up from 0.345 on March 15. The rise indicates traders are raising bets on borrowing-cost increases.

Prime Minister Stephen Harper said last month that Canada emerged from the global crisis stronger and better positioned than its peers. None of Canada’s banks required a government bailout or collapsed since the credit crunch began.

“The recession was shorter and milder in Canada than in other G-7 nations, partly because the flow of credit was not disrupted as it was in other nations and a large pool of savings was available,” Cross wrote in the report.

Canada’s three-quarter long contraction marks only the second time a recession has lasted less than one year, with the previous such slump taking place in 1957.

Canada’s dollar has gained 20.5 percent over the past year, and surpassed parity with the U.S. dollar this week.

OECD Forecast

The Organization for Economic Cooperation and Development projected on April 7 that Canada’s economy will expand at an annual pace of 6.2 percent in the first quarter, and 4.5 percent in the second quarter of this year, compared with average growth of 2.1 percent for the G-7 over that time.

The U.S. recession started in December 2007, according to the National Bureau of Economic Research, the arbiter of U.S. business cycles. The NBER panel responsible for deciding when U.S. recessions begin and end said April 12 that it’s too soon to declare the current slump is over.

While Canada suffered from falling U.S. demand for exports, Cross said the country’s banks were able to maintain credit flows to businesses and households. Consumer spending rose in both 2008 and 2009, acting as a “major factor” in moderating the country’s recession, the agency said.

Statistics Canada said businesses reacted to falling global demand by slashing capital expenditures and running down inventories, and avoided job cuts that helped to stem the impact of the recession on household incomes.

Businesses cut C$41 billion ($41 billion) from capital acquisitions in 2009, more than four times the C$9.5 billion cut from spending on labor, the report said.

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