Big Six bank's head of capital markets says proclamations are based on debateable math
Is Canada already in a recession or not? Some commentators are sure it is, but Scotiabank’s head of Capital Markets says their calculations are weak.
“Not only is their math debateable, but the added issue is also what constitutes a real recession in order to merit the potentially very damaging and confidence-sapping label,” Derek Holt wrote in a blog.
Using monthly GDP data from Statistics Canada, Holt points out that this measure of the Canadian economy has been trending flat for a while - “which doesn’t really look like a recession to me” - and preliminary guidance for September’s figures suggest this will continue.
The stats show that, while the economy has stalled and showing little signs of growth, it has not entered a technical recession of two consecutive quarters of negative growth.
Holt says that the those suggesting Canada is already in recession are using an ‘apples and oranges’ mix of monthly and quarterly GDP data.
“A main difference between quarterly expenditure-based GDP accounts and monthly production-based GDP accounts is that the former asks how higher or lower output of goods and services was achieved by considering inventory changes and contributions from swings in exports and imports. The latter does not. That’s why we need to be careful in applying Q3 tracking using monthly GDP as an extension to what quarterly GDP accounts showed for Q2,” he explained.
Wildfires and strikes
Holt highlights the impact of wildfires and strikes on quarterly data, without which there would have been mild growth.
All things considered, the data suggests that growth has been weak, but not so weak as to label the economy as in recession “in any genuine sense,” but weakness is necessary to help bring down inflation.
“It doesn’t help confidence if the media is running around screaming recession if it isn’t fully justified to do so,” Holt added. “It took about a nanosecond for the headlines to scream recession in big red bold highlighted lettering. Nonsense.”
