Canadian Economy Shrinks For First Time Since 2009; Recession Next?

Don't look know but Canada just confirmed the first signal of a recession, after its GDP printed negative (on expectations of an unchanged number) for the first time since Q2 2009, due to a drop in exports and oil output, most of it blamed naturally on "transitory" factors. Odd how the US used the transitory line for months until it all turned out to be permanentory. What, however, is truly hilarious is the continued denial to look facts in the face as confirmed by the following three Canadian sellside analysts, who seem positively giddy that the number was major miss to expectations: their take home, just like as in the case of Canadian banks having some of the lowest TCE ratios in the world: "ignore it." Perhaps when next quarter Canadian GDP prints negative again, and the economy is officially in a recession, then the delightful comedy crew of what passes for "analysts" up north will have some words of caution finally. As for whether a recession confirmation in 3 months will be negative for the same banks which are downplaying both the GDP and its risk to their near world record leverage, we leave to the far more erudite, and far less shoot-from-the-hip Globe and Mail.

SAL GUATIERI, SENIOR ECONOMIST, BMO CAPITAL MARKETS

"Its worth noting that the economy did grow at a fairly respectable rate, plus 3 percent in the previous two quarters, and there were some temporary factors that slowed the economy in the second quarter. The supply chain disruptions in the auto industry, wildfires in Alberta and importantly, the economy appears to have ended the quarter on a fairly healthy note, June GDP up 0.2 percent. That suggests growth will rebound to about 2 percent in the third quarter."

"For the Bank of Canada, growth clearly came in well below its expectations back in July, when it thought the economy would grow 1.5 percent. On balance the report will likely weigh towards keeping the Bank of Canada on the sidelines and we believe they will not raise interest rates until next summer."

"There may have been a knee-jerk (currency) reaction, but I'm not seeing any long-lasting effect. Again, the report does not carry many implications for monetary policy, even though quarterly growth came in a little weaker than expected, June GDP came in a little better than expected, raising hopes that the economy bounced back in the third quarter."

BENJAMIN TAL, SENIOR ECONOMIST AT CIBC

"People should not pay too much attention to this number. It does not represent the real health of the Canadian economy. We all know the second-quarter was impacted in a very significant way by a supply disruptions in the auto sector and energy sector. Those two sectors really were significantly impacted. We know exports went down significantly during this quarter and you will see a nice bounce back in the third-quarter."

"Having said that, if we assume that the U.S. economy will remain relatively soft, exports will remain relatively soft and be under pressure. So although this picture in this quarter overstates the weakness of the Canadian economy and should not be taken at face value, given the temporary factors I mentioned -- this gives the new mix that we should expect over the next 6 to 12 months, which is a somewhat weaker export story given the fact that the U.S. economy will underperform."

PAUL FERLEY, ASSISTANT CHIEF ECONOMIST, ROYAL BANK OF CANADA:

"Going into the report, expectations had been flat GDP growth. So a little bit weaker than expected, unfortunately showing a decline, though it is a fairly minimal drop, a decline nonetheless. Weakness is largely coming from the net export component, and final domestic demand did manage to strengthen to 3.0 percent from a 1.8 percent gain in the first quarter. Nonetheless, it is indicating a marked weakening in the second quarter, certainly below the Bank of Canada's recent forecast suggesting growth at 1.5 percent, though subsequent comments by Bank of Canada Governor Carney did suggest the possibility we could see a small decline."

"Certainly this is reason to keep policy accommodative, holding steady, the overnight rate (target) at 1 percent. At this point, I think they'll view some of the weakness as being the result of transitory factors, and watch the data for indications of a bounceback in growth. And the monthly GDP numbers sort of indicate a start to that process, with growth ticking up to 0.2 in June after the 0.3 drop in May.

"The quarterly numbers (are) weaker than expected plus showing that decline, so as a result it could be a slight negative for the Canadian dollar. However it might be tempered a bit by the June GDP coming in stronger than expected."