Business Cycle Council declares end of COVID-19 recession, says recovery is ongoing

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The Canadian economy has officially clawed its way out of the recession caused by the COVID-19 pandemic, but the recovery is still ongoing, according to the C.D. Howe Institute Business Cycle Council.

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The council, which determines when the economy has entered or exited a recession, reached their decision on Aug. 9 before issuing a formal release on Tuesday. In May 2020, it declared that Canada had entered a recession and in Tuesday’s release said that the trough of the recession occurred in April last year, setting the economy on a path to recovery from May onwards.

“It’s one of the most unique recessions on record in that it was the shortest recession on record but also the deepest since the Great Depression,” said Jeremy Kronick, a co-chair of the Business Cycle Council.

Typically, two consecutive quarters of economic downturn signal the possibility of a recession, but the council doesn’t stick to that rule hard and fast. Rather, it factors in gross domestic product and employment figures when assessing the entrance into or exit from a recession.

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Though the country went back into lockdown several times after the initial shutdown in March 2020, the economy has been resilient enough to withstand the second and third waves. GDP continued to grow, except for a two-month decline in April and May this year, and early estimates for June indicate there was a 0.7 per cent rebound. Employment growth has been more rocky, but between shutdowns, Canadian employers continued to add more people to their payrolls. In June and July, the economy boasted a gain of 325,000 jobs.

Along the way, “there were little bumps, not big and certainly not long enough or wide enough or deep enough for those to be recessions,” Kronick said.

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Because of the sustained recovery, the Business Cycle Council voted nearly unanimously to consider any “pronounced, pervasive and persistent economic downturn” in the future to be a new recession rather than a continuation of the pandemic-induced slump last spring, according to the communiqué.

One unnamed member of the council, however, felt that if the circulating Delta variant caused another downturn like the one in April 2020, that member would consider it to be part of the same recession.

But Kronick said the majority felt that the economy had proven it could withstand the lockdowns to continue its recovery and therefore a new event that delivered negative growth would likely be the driver of a new recession.

The Bank of Canada, which helps steer the economy through monetary stimulus and guiding interest rates, maintained in their latest outlook that it expects economic slack to be absorbed sometimes in the latter half of 2022. Until then, it will maintain interest rates to near zero while businesses and Canadians recuperate from the impacts of the COVID-19 recession.

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