After months of contraction, Canada’s economy could be poised to plunge into a full-flung recession, government economists warn.
Last week, Canada’s statistics agency released GDP data that revealed that the country’s economy had shrunk by 0.2 percent in May, even after economists widely predicted that it would be stuck in neutral that month. The discovery, which surprised most observers, has led economists to question whether Canada is officially in recession already and what exactly is going wrong. Experts say rapidly falling oil prices are largely to blame.
“The Canadian economy has been hit hard by sharply lower crude oil prices, which have reduced investment and driven down the value of the Canadian dollar,” Kim Mackrael wrote for the Wall Street Journal in late July.
Crude oil prices are now hovering below $50 a barrel and Canada’s heavy oil trades even below that already low price due to its lower quality. The recent price drop is having a negative impact on Canadian companies and consequently Canadian jobs. Canada's main oil-producing province, Alberta, saw its unemployment rate increase from 5.5 percent to 5.8 percent in May.
But the dropping oil prices have been accompanied by declining productivity in other sectors, too.
“Weighing on the economy were the manufacturing and mining, oil, and gas extraction sectors. Wholesale trade was also down,” Portia Crowe pointed out for Business Insider.
“Manufacturing output contracted 1.7% in May to its lowest level in a year, following no growth in April, according to the report. Mining, quarrying, and oil and gas extraction fell 0.7%, down for the seventh consecutive month,” she continued.
All the data reveals that May was an especially bad month for the country’s economy, edging Canada even closer to the dreaded recession.
Meanwhile, some have suggested that the country’s housing bubble may also be about to burst, especially in key urban areas like Toronto and Vancouver.
“Housing markets in the oil patch have already started losing value," wrote Nick Cunningham for CNN Money. "The Calgary Real Estate Board predicts that the resale value of homes will fall by 0.2% by the end of the year. And total home sales could fall by 22% in 2015. That is a dramatic downward revision from the group's prediction in January that home sales would rise by 1.6%."
The overall forecast is not looking good for Canada. The country's central bank already cut interest rates to 0.5 percent in July, the second cut of 2015.
Still, economists continue to fiercely debate whether the situation qualifies as a recession. Canadian elections are set to be held in mid-October and politicians are sure to campaign on the economy.
“We will kick-start the economy and get Canadians back to work,” Thomas Mulcair, leader of the center-left New Democratic Party, promised Canadians late last week. “This is our No 1 priority.”
Meanwhile, Prime Minister Stephen Harper said that the electorate should stick with what it knows during times of economic downturn by renewing his mandate.
“This is no time for risky plans that could harm our future,” Mr. Harper said. “It is time to stay the course and stick to our plan.”