Apr 2010 22

Canada’s Recession Mildest in G7

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O Canada by Rick Harris O Canada by Rick Harris

Canada experienced a recession that was less severe and shorter than any other Group of Seven (G7) nation. It wasn?t even close to the downturns Canada faced in the early 1980s and 1990s.

Between the third quarter of 2008 and the third quarter of 2009, real GDP in Canada fell by 3.3%, compared to a total decline of 3.7% in the United States and even larger declines in Europe and Japan. The recession of early 1980s lasted six quarters, saw real GDP fall 4.9%, and saw jobs decline by 5%. Meanwhile, the early 1990s witnessed a four-quarter recession in which GDP dropped 3.4%, and payroll numbers decline 3.2%.

One reason for the relatively mild effect of the recession is that Canada was better positioned to take on the global recession than other large western economies, primarily due to savings in the national balance sheet. A large pool of savings was available to finance spending when it was needed the most.

The worst impact of the recession in Canada was on exports, which dropped 22% in 2009. The highest decline was seen between the fourth quarter of 2008 and the first two quarters of 2009 when exports fell by 35%. That compares with a drop of 10% at the worst point of the previous two recessions. Falling exports wiped 33% from corporate profits last year.

Surprisingly, Canadian productivity worsened during the recession, something that had never happened before. This was caused mainly by companies cutting $41-billion from capital purchases, or four times the amount they cut from their payrolls. Canada?s productivity record has been labeled ?abysmal? by Bank of Canada governor Mark Carney, and has called on companies to begin investing money into capital equipment to take advantage of growth-oriented but low-cost emerging markets.

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