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Canada in Recession with Two Consecutive Quarters of Negative Growth

Yesterday, Yahoo!News reported Canada Officially Enters Recession.

Reeling from low oil prices, Canada fell into a recession in the first half of the year, government data confirmed Tuesday, putting Conservative Prime Minister Stephen Harper on the defensive in the run-up to October elections.

According to Statistics Canada, the economy contracted 0.5 percent in the second quarter after retreating 0.8 percent in the previous three months.

It is Canada's second recession in seven years and it is the only Group of Seven nation in economic retreat. The figures are the weakest since the 2008 global financial crisis.

The data reflects fears about the health of the global economy as more gloomy evidence emerged of a slowdown in China, a main engine of growth worldwide.


Canada Recession Call Easy

Unlike the US, where the Fed pegged short-term interest rates so low that the yield curve cannot invert, calling the Canadian recession was easy.

On January 21, 2015 I wrote Canadian Recession Coming Up: Yield Curve Inverts Following Unexpected Rate Cut; Loonie at Six-Year Low.

"Coming Up" happened quickly.

On January 31, I wrote Canada in Recession, US Will Follow in 2015.

Following the rate cut, the yield curve in Canada inverted out to three years. Inversion means near-term interest rates are higher than long-term rates.

I saw no other person mention the inversion at the time. An inverted yield curve generally portends recession.


US Recession Call More Difficult

With constantly huge GDP revisions in the US, and with a yield curve that cannot invert, it's much tougher calling US recessions.

It remains to be see if a US recession starts this year or not. Spectacular auto sales and modest home building have kept the economy trudging along.

However, the US is not going to decouple from a slowing global economy forever. The idea is a silly as the 2008 notion that China would decouple from the US economy.

 

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