Tuesday, September 1, 2015

Canada 2015 Second Quarter GDP Down 0.5% (Annualized), Predictions for Ontario? Recession Possible?

Statscan just released the second quarter GDP numbers for Canada and they aren't good. Second quarter GDP was down 0.5% on an annualized basis, which follows a decrease of 0.8% in the first quarter of 2015. Interestingly that was a revision from 0.6% in the first quarter. US GDP was up 3.7% in the second quarter (although that was after a weak first quarter and the strength might be from inventory shenanigans).

What does this mean for Ontario's GDP? We won't know for a while, but we have some numbers. First quarter GDP for Ontario was down 0.2% on an annualized basis in the first quarter (although that might have been based on the earlier unrevised numbers). Considering the size of the Ontario economy as a percentage of Canada's and what happened in the first quarter, it would be hard for the second quarter number to be very high. No doubt Alberta had a far worse number than 0.5%, but Ontario's can't be much above zero. Conceivably Ontario could have -0.1% (annualized) growth in the second quarter which would match the technical definition of a recession (two consecutive quarters of negative growth). That's a pretty mild recession.

However, the Ontario 2015-2016 budget was predicting 2.7% growth in 2015 and given this Canadian number today for the second quarter, that seems impossible to meet now and there will likely be a significant miss. That will affect government revenues which potentially could lead to a bigger deficit than was planned for this fiscal year. Then again the Liberals likely overstated the deficit, so it could come in right on the number they gave. In any case, the Ontario economy isn't strong at all, despite the cratering dollar.

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