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Could the coming months be a case of déjà vu all over again?
Many economists believe the chances of another dramatic downturn are slim, but still within the strike zone. Some others, like David Madani at Capital Economics, worry Canada could well have been in recession — with a minor blip or two — since the start of 2015 and might remain there a little longer.
We fear that the economy may never have escaped the recession that began earlier this year“While non-conventional oil production rose modestly, declines elsewhere indicate that the economy is struggling to deal with the broader fallout from the oil price shock,” Madani opined in the wake of last week’s surprising no-growth reading for October.
“As things stand now, we fear that the economy may never have escaped the recession that began earlier this year,” he said in a note to investors, titled “Canada may never have escaped recession.”
After all, the economy had only a month earlier gone into reverse — contracting 0.5 per cent in September — and clearing the plate for possibly more disappointing data to crunch in November.
And given that gross domestic product had already spent the first half of 2015 in contraction — the technical threshold for recession being two consecutive quarterly declines — and with the final month of Q3 also falling back, is there any wonder some analysts are calling a timeout on future growth as well?
“Overall, with the economy now looking like it may have stagnated this quarter, the amount of excess slack will increase, creating more downside risk to the Bank of Canada’s longer-term outlook for underlying inflation,” wrote Madani.
“It’s early yet to draw final conclusions regarding the fourth quarter, and there should be a bounce back in GDP in November and December as a good chunk of the weakness so far in Q4 is a function of weak output in the oil sector to end Q3,” Holt cautioned in an investment note.
“Still, a bounce would only pull GDP up from its current very-low level,” he said. “There will be a quite steep uphill climb for the economy to hit the 1.5-per-cent (quarter-over-quarter) annualized print forecast by the BoC for Q4.”
Madani, at Capital Economics, has consistently gone against the grain with his interest-rate forecasts, calling for the central bank to cut its key lending level well before governor Stephen Poloz did just that — beginning in January with a 25-basis-point drop and followed by a similar reduction in July, taking the rate to 0.5 per cent.
The recent performance by the economy “supports our view that another interest-rate cut is likely early next year, probably in April, though possibly sooner if oil prices fall any further,” Madani said.
Charles St-Arnaud, an economist at Nomura Global Economics, agrees that weakness in the Canadian data “increases the probability that the BoC will need to cut rates next year.”
“The fact that activity in the service sector has been virtually flat for the past four months is particularly concerning, especially if the recent decline in oil prices leads to renewed contraction in the resource sector and in manufacturing,” St-Arnaud said in note to clients.
The latest GDP tally “suggests that growth in Q4 is likely to be close to zero per cent and could even be negative.”
I guess, “the future ain’t what it used to be.”
