A Fiat Chrysler assembly worker walks past a Dodge Grand Caravan minivan on the final production line at the Windsor Assembly Plant in Windsor, Ontario, February 9, 2015.REBECCA COOK/Reuters
If Canada is in recession, surely you would see it in Vancouver.
The city is the hub of a slumping resource economy and the gateway to slowing China.
And, yet, Vancouver is thriving. The housing market is as hot as ever. Unemployment, now at 6 per cent, is lower than it has been in years, and consumers are spending fiendishly.
The same is true in many other parts of the country, even as Statistics Canada confirmed Tuesday that the country's economy now meets the most basic litmus test of a recession – two consecutive quarters of a contraction in gross domestic product.
GDP fell 0.5 per cent in the April-to-June period. That follows a revised 0.8-per-cent drop in the first quarter.
As Bank of Montreal chief economist Douglas Porter put it: If this is a recession, it's "one of the strangest recessions ever."
Canada is suffering through a strange, and decidedly uneven slump.
People will, of course, see what they want in Canada's second-quarter contraction – a recession, a recession averted, or signs of better times ahead. Prime Minister Stephen Harper, for example, insisted that 80 per cent of the economy is doing just fine, while seizing on a return to growth in June, based on industry GDP data.
What is apparent is that Canada isn't showing the classic symptoms of recession – at least not yet. Outside of the oil patch, there is no evidence of broad-based economic weakness. Quite the opposite. We are seeing employment gains, strong housing markets and healthy consumer appetites.
But that's hardly cause to celebrate. The latest data demonstrate the kind of damage a resource slump can do to an already fragile economy.
And that may well be the most important takeaway from first the first-half contraction. The oil price collapse hit an economy that is struggling mightily to find a new engine of growth.
The oil patch accounts for an outsized share of business investment in Canada, sucking resources from other sectors. Spending by businesses dropped off a cliff when the price of crude plummeted. That overwhelmed all the other major components of GDP in the first half, including consumer and government spending as well as investment in housing and trade. And more oil patch investment cuts are likely coming.
The net result is a shrinking economy.
With China slowing and the U.S. recovery still uncertain, Canada must now look beyond oil and other natural resources to find new drivers of growth.
Efforts by the Bank of Canada to kick-start the non-energy sector, including two interest rate cuts this year, have so far produced unspectacular results.
Lower interest rates have helped send the Canadian dollar lower against the U.S. dollar. That makes exports and foreign travel to Canada relatively more attractive.
But manufacturers, in particular, which export much of their production, aren't about to ramp up investments to take advantage of a lower dollar, which could prove transitory. It will take a much longer period of a sustained weak currency to persuade companies in price-sensitive sectors to make significant new commitments.
And, yet, the worst may be over for the Canadian economy in the short term. The third quarter is already two-thirds done, and most economists are looking for GDP growth to resume.
But it won't be boom times in the second half and beyond. Economists expect the economy to grow just 1.1 per cent this year and 2.1 per cent in 2016, according to an August survey of 16 forecasters by Consensus Economics Inc. That is well below its potential, and nearly half the pace expected in the United States, Canada's major trading partner.
It's not at all clear that the manufacturing sector is ready to fill the void left by the resource slump.
The Economist recently dubbed Ontario's manufacturing heartland "the new rustbelt," warning that the sector's share of Canada's GDP has plummeted to 10 per cent from 18 per cent since 2000, and may never recover its former glory.
The challenge for Canada is to orchestrate a return to a more balanced national economy – one where the plunging price of a single commodity can't drag the entire country to the brink of recession.
Until that happens, Canadians will be living off the dividends of earlier resources booms, rather than building the foundations of the economy of the future.