Posthaste: This cratering GDP number has only ever been seen during a recession (2024)

Falling GDP-per-capita has economists calling for Bank of Canada to start cutting rates

Author of the article:

Gigi Suhanic

Published May 01, 2024Last updated 1day ago5 minute read

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Canada’s February gross domestic product numbers were disappointing in more ways than one.

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Statistics Canada data released Tuesday showed the economy grew 0.2 per cent for the month — below analysts’ estimates of 0.3 per cent and StatsCan’s own advanced forecast of 0.4 per cent — revealing an economy that is losing steam.

However, the reading that put economists most on edge wasGDP per capita.

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The closely watched measure continued to crater and is now down three per cent from its peak in September 2022, according to Matthieu Arseneau, deputy chief economist at National Bank of Canada.

“A decline of this magnitude has never been recorded outside of a recession,” Arseneau said in a note following the GDP release. He estimates first quarter annualized GDP per capita currently stands at -1.2 per cent, and at -0.3 per cent non-annualized.

GDP per capita was also on the Royal Bank of Canada‘s radar.

Weaker-than-expected GDP coupled with Statistics Canada’s forecast for flat growth in March, “leaves output for Q1 as a whole tracking (by our count) a seventh consecutive per-capita decline,” RBC economist Claire Fan said in a note.

Fan said the bank estimated GDP per capita declined 0.5 per cent in the first quarter from the fourth quarter of 2023.

GDP per capita matters because “it is an indicator of the average standard of living of the population,” Arseneau said in an email. “Higher population growth naturally leads to better economic growth.”

Not this time around.

Posthaste: This cratering GDP number has only ever been seen during a recession (4)

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Economists have credited Canada’s record population increase with keeping the economy out of technical recession territory, defined as two consecutive quarters of negative growth. However, on a per-person basis there has been “significant underperformance,” Arseneau said.

Some think that the economy is already in recession based on GDP per capita.

Jimmy Jean, chief economist at Desjardins Group, said in an interview with the Financial Post’s Larysa Harapyn at the end of February that “when you look at things (GDP) on a per-capita basis, the Canadian economy is, for all intents and purposes, in a recession.”

Despite expected annualized growth of 2.5 per cent for the first quarter that many economists attributed to one-off events, falling GDP per capita is only one sign of a flailing economy, the National Bank of Canada economist said.

“This ‘solid’ growth during the quarter did not prevent the unemployment rate from rising, another sign that economic growth was below potential during the quarter,” Arseneau said.

Canada’s unemployment rate hit 6.1 per cent in March, up from 5.7 per cent in January.

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National Bank is currently calling for the jobless rate to rise to seven per cent by the end of the year.

Other examples of the underlying weakness include the deceleration in the rate of inflation.

Over the last three months, the Bank of Canada’s two preferred measures of core inflation were “running at an annualized pace at the lower end of the central bank’s target range” of one per cent, Arseneau said.

These factors should add up to the Bank of Canada cutting rates this summer, with the economist warning that not doing so could risk economic damage.

“This overly restrictive monetary policy is reflected in our gloomy economic outlook for the coming quarters,” with growth for the year barely registering at 0.6 per cent, Arseneau said.

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The Canadian economy lost momentum in February as it grew at a slower pace than both analyst expectations and Statistics Canada’s previous prediction, increasing the pressure on the Bank of Canada for a potential interest rate cut in mid-2024. — Naimul Karim, Financial Post

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Posthaste: This cratering GDP number has only ever been seen during a recession (7)

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      Posthaste: This cratering GDP number has only ever been seen during a recession (8)

      Posthaste: This cratering GDP number has only ever been seen during a recession (9)

      Posthaste: This cratering GDP number has only ever been seen during a recession (10)

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      McLister on mortgages

      Want to learn more about mortgages? Mortgage strategist Robert McLister’s Financial Post column can help navigate the complex sector, from the latest trends to financing opportunities you won’t want to miss. Read them here

      Today’s Posthaste was written by Gigi Suhanic, with additional reporting from Financial Post staff, The Canadian Press and Bloomberg.

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      Posthaste: This cratering GDP number has only ever been seen during a recession (2024)

      FAQs

      How is the GDP factored into a recession or depression quizlet? ›

      Real GDP declines when the economy goes into recession because investment rates, profits, and income are all applied to real GDP and when there is a recession it declines.

      What are some events that cause recessions to begin? ›

      As energy becomes expensive, it pushes up the overall price level, leading to a decline in aggregate demand. A recession can also be triggered by a country's decision to reduce inflation by employing contractionary monetary or fiscal policies.

      What is the point where real GDP stops going up? ›

      The peak is the height of the expansion. It occurs when real GDP stops rising. The peak is followed by a period of contraction.

      What is a decline in real GDP lasting at least two quarters or more? ›

      A recession is a significant, widespread, and prolonged downturn in economic activity. A common rule of thumb is that two consecutive quarters of negative gross domestic product (GDP) growth indicate a recession.

      What happened to GDP during the Depression? ›

      How did the Great Depression affect the American economy? In the United States, where the Depression was generally worst, industrial production between 1929 and 1933 fell by nearly 47 percent, gross domestic product (GDP) declined by 30 percent, and unemployment reached more than 20 percent.

      How was GDP affected during the Great Recession? ›

      Between December 2007 and June 2009 the United States experienced the most severe recession in the postwar period. The over 4 percent decline in gross domestic product (GDP) was only reversed more than three years after the beginning of the recession.

      What were 3 effects of the recession? ›

      What Are the Main Effects of a Recession on Businesses? Recessions cause declines in sales that can spiral as the resulting layoffs further depress demand. Credit access tends to tighten amid rising economic uncertainty, while loan delinquencies and defaults increase alongside bankruptcies.

      What is most likely to happen during a recession? ›

      Investors could also see losses, as stock markets fall. During a recession, we may see an increase in foreclosures, and banks will be less likely to loan money to potential borrowers looking for a mortgage or a personal loan, according to Forbes.

      What are the three main causes of a recession? ›

      Here are three common causes of recession.
      • Oversupply. In an economic boom, companies tend to increase production to meet consumer demand. ...
      • Uncertainty. Not knowing how the economy will change makes business decision-making riskier. ...
      • Speculation.
      Aug 26, 2022

      When GDP stops rising? ›

      Peak--when real GDP stops rising, the economy has reached its peak, the height of its economic expansion. Contraction--Following its peak, the economy enters a period of contraction, an economic decline marked by a fall in real GDP. A recession is a prolonged economic contraction.

      What happens if GDP goes up? ›

      In broad terms, an increase in real GDP is interpreted as a sign that the economy is doing well. When real GDP is growing strongly, employment is likely to be increasing as companies hire more workers for their factories and people have more money in their pockets.

      What is a deep recession known as? ›

      There is no formal definition of depression, but most analysts consider a depression to be an extremely severe recession, in which the decline in GDP exceeds 10 percent. There have been only a handful of depression episodes in advanced economies since 1960.

      Why is a 0% unemployment rate an unrealistic goal? ›

      First, it might be difficult or even impossible to achieve due to natural fluctuations in the economy and labor market. Second, reaching zero unemployment could lead to increased inflation, as companies may have to raise wages to attract workers, driving up the overall cost of goods and services.

      What makes a recession become a depression? ›

      A depression is a dramatic and sustained downturn in economic activity, with symptoms including a sharp fall in economic growth, employment, and production. A depression can be defined as a recession that lasts longer than three years or that results in a decline of at least 10% in annual GDP.

      Is there low inflation in a recession? ›

      During a recession, economic activity slows. When consumers spend less, the demand for goods and services falls. Once that happens, prices tend to drop, slowing down inflation.

      How is the GDP factored into a recession or depression? ›

      As noted, a recession is defined as at least two consecutive quarters of negative GDP growth, even if that decline is slight. 1 A depression is defined by a drop in annual GDP of 10% or more.

      How does GDP help determine if we are in a recession? ›

      Most commentators and analysts use, as a practical definition of recession, two consecutive quarters of decline in a country's real (inflation-adjusted) gross domestic product (GDP)—the value of all goods and services a country produces.

      What determines whether we are in a recession or depression? ›

      'Recessions' vs. 'Depressions' in the Economy. A recession is a downtrend in the economy that can affect production and employment, and produce lower household income and spending. The effects of a depression are much more severe, characterized by widespread unemployment and major pauses in economic activity.

      What is one main cause of recession and depression? ›

      Financial factors can contribute to an economy's fall into a recession, as during the 2007–2008 U.S. financial crisis. The overextension of credit and debt on risky loans and marginal borrowers can lead to an enormous buildup of risk in the financial sector.

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