Is Canada's 'technical recession' already over?

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It's going to be a blockbuster kind of week for the Canadian economy.

The deadline to renew Canada-U.S.-Mexico Agreement will (almost assuredly) swoosh by on Wednesday, accompanied by a chorus of commentary and recriminations.

Before we get there, we will get the latest GDP numbers for April on Tuesday.

The economy has been struggling to find its footing. We experienced back-to-back quarters of economic contraction through the end of last year and the beginning of this year, sparking heated debate about whether Canada is in a technical recession.

Wherever you land on that debate, one thing is abundantly clear: Canada's economy is weak. It was weak before Donald Trump came along. But the U.S. President's trade war has made it weaker still. It hasn't grown in a year. 

What Canadians need to know about a 'technical recession'

But down at the bottom of the last GDP report, Statistics Canada offered this glimmer of hope:

"Advance information indicates that real GDP increased 0.4 per cent in April," wrote the statistical agency.

Now, 0.4 per cent doesn't sound like much. But if the economy was growing by that much every month, we would be a roaring economy.

Canada has only posted 0.4 per cent monthly growth six times since the summer of 2022.

"Early data is pointing to a significant increase in non-conventional oil extraction and oil drilling in April. Adding in a pickup in manufacturing GDP, goods-producing sectors overall likely expanded by one per cent," wrote RBC economists Nathan Janzen and Claire Fan.

They also warn that these data releases have become "highly revision-prone" lately.

Indeed, revisions have loomed large this year. Economists were expecting the last GDP release to show the economy had surged to start the first quarter of the year.

Instead, the quarter posted a contraction.

So, what happened? Well, for starters, GDP numbers were heavily revised between the release of the February and March data.

Desjardins deputy chief economist Randall Bartlett, along with economist L.J. Valencia, wrote a scathing paper on the impact these revisions are having.

"Monthly GDP has become much less reliable as an economic indicator since the end of the pandemic. It is now much more heavily revised than it was prior to 2020," they wrote.

Indeed, they say entire series of data that were key to understanding the direction of the economy are no longer useful. 

That makes each of these releases, from jobs numbers that tell us how many people are working to retail sales figures that show us how much consumers are spending, less reliable.

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Revisions have always been common. As we get more information, we need to be able to incorporate that into the numbers and reassess what they tell us.

But Bartlett says revisions (specifically dealing with monthly GDP numbers) have become larger and more unpredictable in recent years.

And he says that can create deeper and harder-to-fix problems.

"Some of these challenges can be overcome with more funding. But others, like concern related to trust in public institutions, may be a more intractable problem," they wrote.

So Tuesday's GDP numbers loom large for a few reasons.

They land just before the deadline to renew CUSMA (so, good or bad, they will help shape that debate). They are expected to show a rebound after a long run of negative growth. And lastly, they'll likely offer new revisions, which could change previous reports and give new shape to how we see the economy in a tough time.

Senior Business Reporter

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