Recession draws to a close

After 10 consecutive months of decline, Canada’s gross domestic product showed a glimmer of hope in June with a 0.1% rise in GDP. And there’s plenty of evidence that growth continued through July and August, according to report by Dr. Sherry Cooper, chief economist of BMO Capital Markets.

Canada’s economy fell at an annualized rate of 3.7% in the last quarter of 2008. In the first quarter of the year it plunged 6.1% — the worst quarterly decline in the past 50 years. The rate of contraction slowed in the second quarter, to 3.4%.

Exports were responsible for the bulk of the contraction in the second quarter and the sector retreated for seven consecutive quarters — the worst performance on record — as the export sector has shrunk 30% since the start of the U.S recession back in late 2007.

A report by TD Financial Group forecasts that recovery in exports will be sluggish due to the strength of the Canadian dollar. However, the improvement in U.S. demand for commodities such as coal, petroleum and industrial products may help to offset some of the effects of the Canadian dollar.

Meanwhile, consumer confidence appears to be rebounding as spending on consumer-related goods increase, up 1.8%, largely pushed up by a 19% increase auto sales. Also, real estate appears to be leading the economy to recovery. Resale home activity picked up by 6.2% in the quarter, which ends five consecutive quarters of declines.

Don Drummond, chief economist at TD Bank, says the government is to thank for ending the recession in Canada. He pointed out that the central bank’s swift response to slashing interest rates and the government’s stimulus spending helped end the recession sooner and cushioned the severity of the financial crisis in Canada.

Canada’s stimulus spending for 2009 and 2010 will be approximately $80 billion. In the U.S. total stimulus spending is expected to reach $9 trillion (USD) over the next decade.

Though government aid helped propel the economy back to its feet, some experts believe that growth is so dependent on government funds that the economy may slide back into recession mode once stimulus spending thins out.

(08/31/09)