Declarations that Canada is in a recession after the release of preliminary third-quarter gross domestic product data — which pointed to a second straight quarter of contraction — are “premature,” according to a top economist.

Derek Holt, head of capital markets economics at the Bank of Nova Scotia, argued that monthly production-side GDP accounts, published on Tuesday, shouldn’t be used to determine whether the economy has entered a recession.

Expenditure-based GDP for the third quarter, slated to be released on Nov. 30, would be a more appropriate indicator because the data takes into account inventory changes as well as imports and exports, he said.

Preliminary industry-based data from Statistics Canada earlier Tuesday suggested GDP was unchanged in September, a third straight month of flat readings. The numbers point to an unexpected decline in output of 0.1% annualized for the third quarter, following a 0.2% contraction from April to June based on expenditure-based data.

While two straight quarters of contracting gross domestic product constitute a “technical recession,” it’s not the only requirement the C.D. Howe Institute Business Cycle Council uses to determine a recession, a broader economic downturn that usually also entails protracted job losses and steadily rising unemployment.

The last time Canada saw two consecutive quarters of contraction without a full declaration of a recession was in the first half of 2015 after oil prices collapsed, contributing in part to the defeat of Prime Minister Stephen Harper’s government in an election later that year.

Scotiabank sees Canada’s economy expanding at an 0.8% annualized rate in the third quarter, twice the 0.4% average forecast in a Bloomberg survey of economists.

Copyright Bloomberg News
Source CMP
By Randy Thanthong-Knight