The oil slump has thrown Canada back into recession

Alberta’s tar sands are looking more and more like an economic quagmire.
Alberta’s tar sands are looking more and more like an economic quagmire.
Image: Reuters/Todd Korol
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Another victim of the oil crunch? Canada’s economy.

The country’s GDP shrank at a -0.5% pace last quarter after a -0.8% print in the first, meaning the first Canadian recession since the financial crisis is officially underway.

Statistics Canada, the country’s national statistical agency, laid some of the blame at the feet of the oil industry, which has been dealing with considerable cutbacks.

The mining, quarrying and oil and gas extraction sector (-4.5%) posted a notable decrease, down for a second consecutive quarter. The decrease was mostly a result of the decline in the non-conventional oil extraction industry (-5.7%), which experienced maintenance shutdowns and production difficulties in the second quarter. Support activities for mining, oil and gas extraction (-18%) declined for the second consecutive quarter. Manufacturing, construction and utilities also declined in the second quarter.

But it’s not like this is a surprise. Vice News detailed in June the toll that falling energy prices were having on Canada’s economy in a June documentary called “Alberta’s Boom Time Hangover.” And when the Bank of Canada cut interest rates in July (pdf), it noted that the oil sector’s faster-than-expected deterioration had caught the central bank somewhat off guard. Still, the BoC remains optimistic that the economy will pull through by year’s end:

The Bank expects growth to resume in the third quarter and begin to exceed potential again in the fourth quarter, led by the non-resource sectors of Canada’s economy. Outside the energy-producing regions, consumer confidence remains high and labour markets continue to improve. This will support consumption, which will also receive a fiscal boost.