'The recessionistas have some explaining to do'
Canada’s economy has shown “remarkable resilience” amidst a series of challenges this year, according to a leading economist, with new gross domestic product (GDP) figures showing the country has avoided a recession to date despite an economic contraction in Q3.
Derek Holt, vice president and head of capital market economics at Scotiabank, said Thursday’s report by Statistics Canada had proven Canada’s “recessionistas” wrong.
“The amazing thing is that despite about 500 [basis points] of rate hikes, wildfires, drought, strikes aplenty and inventory swings, Canada’s economy is proving to be remarkably resilient thus far,” said Holt.
“Overall, the amount of misinformation on Canada remains stunning. The economy is not in recession at least not to this point despite other claims to the contrary and we need to control for things beyond rate hike effects.”
Holt said the latest figures showed that the economy had performed better than previously expected in the second quarter and shrank in Q3 (although details were “better under the hood”), but was trending to post positive growth in the fourth quarter.
“The economy is not in recession as some folks across the street have been claiming. The recessionistas have some explaining to do, and the Bank of Canada won’t see enough in here to guide easing any time soon,” said Holt.
An economy in better shape than expected
While the GDP saw an unexpected contraction in Q3 by 1.1% q/q SAAR, Holt said the composition of the weakness pointed to better details. Housing, government spending, and private consumption all contributed to the growth. While inventories have dragged a percentage point away from growth, Holt said that careful inventory management was not necessarily a negative occurrence.
“It’s actually prudent of companies such that if the economy disappoints, they won’t have as much inventory to store and finance as they would have otherwise, but if the economy is resilient then perhaps, they’ll have to re-stock,” said Holt.
The contraction in Q3 was mainly because of the upward revision in the growth during Q2 which was currently at +1.4% q/q SAAR. This upward revision was caused by revisions to exports and inventories which consequently caused a higher jumping off point that made it hard to post expected growth in Q3.
Holt also said that the final domestic demand continued its growth as it was up by 1.3% q/q SAAR in Q3 after it saw a 1.2% increase in the previous quarter.
“It is a cleaner barometer of domestic economic activity and I would expect the BoC to flag its continued growth as an offset to the GDP numbers in their statement next week,” said Holt.
“FDD is among the things I watch beneath GDP numbers for signs of a genuine downturn in the domestic economy and that’s not happening here,” he added.