Bank of Canada warns against overinterpreting the economy entering a technical recession

Ottawa —
Deputy Governor of the Bank of Canada Caroline Rogers warned against rushing to consider the Canadian economy in a full recession, after data showed GDP contraction for the second consecutive quarter.

Rogers said before a parliamentary committee that recording two consecutive quarters of annual contraction matches one technical definition of a recession, but she emphasized that describing it as a “technical recession” means other indicators must be considered before drawing a final judgment.

She explained that assessing the health of the economy should not rely on a single indicator only, but should include employment data, production, and leading indicators of economic activity.

Data from Statistics Canada had shown a 0.1% annual contraction in real GDP in the first quarter, following a larger decline in the last quarter of last year.

However, Rogers pointed out that preliminary estimates of GDP by industry showed potential growth of 0.4% in April, which may indicate that the economic weakness is not necessarily broad or sustained.

The growth data sparked wide political debate, after the Conservatives used it to attack Prime Minister Mark Carney’s government and accuse it of failing to manage the economy.

Despite the weak figures, several economists avoided describing the situation as a full recession, considering that a recession usually requires a longer period of decline including jobs, industrial production, and demand, not just a limited contraction in output.

The Bank of Canada is preparing to announce its next interest rate decision on June 10, amid anticipation of May labor market data and a broader reading of the economic trajectory.

Rogers confirmed that the bank will take into account all recent data, including GDP and labor market figures, before determining the monetary policy path.