Bank of Canada Warns Against Overreacting to Techical Recession Indicator

The Bank of Canada in Ottawa,. Photographer: David Kawai/Bloomberg Photo by David Kawai /Photographer: David Kawai/Bloomb

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(Bloomberg) — Bank of Canada Senior Deputy Governor Carolyn Rogers cautioned against concluding the country is in a recession after recent data showed the economy contracted for a second consecutive quarter. 

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“Two quarters of annualized contraction in GDP does meet one definition of a recession. But simply the fact that you have to put the term ‘technical’ in front of it sort of tells you that you need to really look past that one indicator,” Rogers told a parliamentary committee on Monday. 

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Real gross domestic product fell by 0.1% on an annualized basis during the first three months of the year, Statistics Canada reported on Friday. That follows a 1% contraction in the fourth quarter, a downward revision from a 0.6% decrease previously reported by the federal agency.

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Rogers said employment data and leading indicators should also be taken into consideration, such as a flash estimate for industry-based GDP that suggested the economy grew by 0.4% in April.

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“I think we need to be careful not to put too much weight in any one indicator,” Rogers told parliamentarians.

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The GDP data set off recession talk in the country, with Conservative Leader Pierre Poilievre pouncing on Prime Minister Mark Carney over his management of the economy. 

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“You promised you would deliver the fastest-growing economy in the G7. You delivered the only recession in the G7,” Poilievre wrote in a letter to Carney on Sunday. 

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While the data suggests the economy is weaker than previously expected, economists have so far avoided the recession label. 

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“Normally you need an extended period of contraction in readings like jobs and industrial output to call a recession,” Derek Holt, Bank of Nova Scotia vice president and head of capital markets economics, wrote in a note to investors on Monday. “We don’t have that at this point and there is a higher bar to calling recession on these readings than a handful of months.” 

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The Bank of Canada is set to make its next interest rate announcement on June 10. Rogers said the central bank will take into consideration recent economic data, including last week’s GDP numbers as well as the forthcoming May labor force survey.

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