Is Canada in Recession? No One Knows for Sure

Stephen Poloz
Bank of Canada Governor Stephen Poloz. Photographer: Ian Waldie/Bloomberg

When the U.S. goes into a recession, the National Bureau of Economic Research makes the call. In Canada, it’s not so clear cut.

That leaves policy makers and economists to define a slump based on their own standards, as Bank of Canada Governor Stephen Poloz did Wednesday after he cut rates for the second time this year and said the economy probably contracted in the first two quarters of 2015.

While that two-quarter economic decline fits the definition of recession for some economists, Poloz declined to use the “R” word.

“I just find the discussion quite unhelpful,” Poloz said, when asked whether Canada was in recession, adding that parts of the economy are growing.

In the U.S., the accepted arbiter of economic slumps is the Cambridge, Massachusetts-based National Bureau of Economic Research. The group’s cycle-dating committee, created in 1978, defines a recession as “a significant decline in activity” as tracked by a range of indicators, including gross domestic product, payrolls, incomes, sales and production. It shuns the informal definition of two quarters of declining output.

The C.D. Howe Institute, a Toronto-based policy research group, is modeling itself after the NBER with its business cycle council, created in 2012. The council meets when economic conditions indicate the possibility of entry to or exit from a recession, according to its website.

Too Shallow

In deciding if the economy is in recession, the council “looks at how long, how deep, and how widespread the downturn is,” said Bill Robson, chief executive officer of the institute, in an e-mailed statement. “So far, what we are seeing in Canada looks too shallow and concentrated in energy-producing sectors and regions to call a recession.”

Canada’s lack of an agreed-upon definition of recession leaves economists and investors to pick their own views.

“A recession is when stuff recesses,” said David Wolf, a portfolio manager at Fidelity Investments in Toronto and a former adviser to the Bank of Canada. “The actual definition is when things recess, you get a general move backwards in just about everything, employment, activity, output, production and spending, that’s not what we’re seeing.”

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