When this happens, Canada will feel the recession hangover that it has been putting off since 2008.Keen described how high consumer debt levels can hobble the economy: if people are using their disposable income to pay interest and debt, they’re not using it to purchase goods and services, which can in turn decrease GDP.These high private debt levels also limit Canada’s ability to deal with the next recession. And the data suggests this one is on track to be quite a bit worse than that one.While the decline in March was record-setting, economists expect the data for April will show an even bigger drop, with the measures taken to slow the spread of the coronavirus in place for the entire month.The eight-person council, which normally meets once a year in December, decided to meet twice last month, once it became clear that something dramatic was happening to Canada's economy.Stephen Gordon, an economics professor at Université Laval and member of the council, says the current economic slowdown is a great example of how the "two quarters of contraction" definition of a recession is too dogmatic.In a series of tweets on Friday, he noted that if the slowdown had started in April as opposed to March, the entire first quarter would have been excluded. Howe Institute's Business Cycle Council declared Friday.It's official — Canada's economy is in a recession, C.D. The opposite is true in Canada. "Members agreed that by applying the council's methodology to the preliminary data available, Canada entered a recession in the first quarter of 2020," the council said in a statement.There are no hard and fast rules for declaring a recession, although one rule of thumb used by economists is that an economy is probably in one if it has shrunk for two three-month periods in a row.The council rejects the "two quarters" rule and instead defines a recession as a "pronounced, persistent and pervasive decline in aggregate economic activity" based largely on GDP and the job market.The COVID-19 pandemic is still less than two months old in Canada, but the council said Friday that the slowdown is already so swift and deep that it's safe to declare a recession already. Private debt in Canada has grown to 220% of GDP, up from 150% in 2008.A decade of low interest rates and stagnant wages has prompted Canadians to borrow more. Interest rates are at historical lows and there is not much room for the top bank to lower interest rates. However, the sharp credit decline in the U.S. meant that over time households became less leveraged. By the "two quarters of economic decline" definition, Canada had a brief, slight recession in late 2014 and early 2015, as the price of oil crashed. As countries look for jurisdictions to unload exports whose demand has been hurt by U.S. tariffs, Canada could be the beneficiary of lower-priced goods as international companies off-load their backlogged inventory.
By the "two quarters of economic decline" definition, Canada had a In the council's view, this is the first recession Canada has seen since the financial crisis that began in 2008. Eventually, however, banks will no longer be willing to lend to heavily indebted consumers, who will no longer be able take on additional debt and the associated costs to service it. Since 2010, Canada’s housing index has doubled while the U.S. housing index has risen only 40%. This means that Canada could be experiencing a housing bubble that won’t be seen south of the border.The biggest difference between today’s good economy and the one that existed in 2007 is the threat posed by the Trump trade war.While it may make a recession even more imminent, the Trump trade war could have some minor, unexpected benefits for the Canadian economy. "The council agreed the magnitude of the contraction makes it extremely unlikely that any future adjustments will overturn the conclusion of a major drop in economic activity in the first quarter," the council said.Declaring a recession is always controversial, since there is no unanimous view as to what qualifies as one. But Canada’s debt service ratio is 24% of GDP, 1.6 times the size of the U.S. ratio and nine points higher than that of the U.K. British Columbia’s delayed infrastructure projects may also be a silver lining in a recession.