Finance
Making sense of the markets this week: December 3, 2023 – MoneySense
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When a recession is not a recession
This week saw a perfect example of why the word “recession” has now largely been rendered irrelevant.
Recession notes
Before we get to why all this recession talk can be misleading, here are the facts:
- A recession means two consecutive quarters of negative gross domestic product, GDP. (Read my recession explainer from a year ago).
- In the past few years, several economists argued about whether the definition of recession should be that simple. Now, there’s also the term “technical recession” to describe two consecutive quarters of a contracting GDP, while reserving the generalized term “recession” for a vague set of parameters that include unemployment and whatever else they want to include.
- Three months ago, Statistics Canada told us that our GDP had contracted 0.2% from April to June.
- On Thursday, Statistics Canada said our GDP had contracted 0.3% from July to September.
So, obviously we’re in a recession, or at least we’re in a technical recession, right?!
Nope.
In its Q3 announcement, Statistics Canada revised its second-quarter GDP measure. To me, it says: “Yeah, so we had another look at the numbers, and, uh, it turns out instead of a slight contraction of GDP, we actually had a very small growth in GDP. So, if you look at the six months from April to September, there was a very small overall shrinkage in Canada’s GDP, we’re not in a ‘technical recession’.”
The much bigger story here could be that Canada’s large immigration numbers are creating an overall GDP number irrelevant to the average Canadian. After all, most people want economic reporting to explain if their own personal situation is likely to get better or worse.
When you look at our GDP-per-capita and overall production-per-capita numbers, Canada is right where it was in 2017.
That’s not to say that increased immigration is a problem or that it has a negative economic effect. I personally feel quite the opposite.
It’s simply a question of how to explain math to Canadians. Whether Canada’s economy grows by 0.2% or shrinks by 0.2% from quarter to quarter is much less important than the fact we’re increasing population by 2.7% per year, and getting nowhere near the level of GDP growth. If our collective economic pie is staying essentially the same size (or perhaps growing very slowly), but we’re cutting it into more and more pieces at an increasing rate, then the most relevant statistic isn’t GDP. Rather it’s the real GDP per capita.
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Kyle Prevost
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