OTTAWA — Canada could be the first advanced nation to stumble into a second recession, says the Bank of Nova Scotia in one of the more stark warnings about the gathering economic storm.
Scotiabank economists say Canada could in fact already be in a mild downturn, given that the economy retreated 0.4 per cent in the second quarter and is at risk to come in negative in the current third quarter, which ends at the end of the month.
While no other forecasting group has come as close to warning of a slump, TD Bank chief economist Craig Alexander agreed that the headwinds of recession are gathering.
A recession is defined as two consecutive negative quarters of growth and usually leads to higher unemployment, flat or lower household incomes and tight money across the economy.
The 2008-09 recession lasted three quarters and led to the loss of more than 400,000 jobs, many in the restructuring manufacturing sector in central Canada.
Few analysts, however, are predicting a second so-called double-dip recession that deep.
One indicator of recent weakness was new data Tuesday showing Canadians fell deeper into debt, and lost household wealth during the difficult second quarter.
The period saw stock markets tumble, eroding the value of Canadians’ investments and undermining the so-called wealth effect that underpins consumer confidence.
Statistics Canada said household net worth fell 0.3 per cent to $184,300, the first decline in a year. Meanwhile, household debt to income rose to a record 151 per cent.
The situation likely got worse in August, when financial markets suffered an even bigger setback from growing unease over European and U.S. deficits and debt.
Scotiabank economist Derek Holt said he was not predicting a recession, but that it would take little to tip Canada into negative territory.
He said while it is true that much of the current difficulties originate from beyond Canada’s borders, there are also few remaining pillars of strength in the domestic economy.
Two expected sources of economic strength — business investment and exports — show signs of weakening, he said.
On top of that, housing is flat, jobs growth is stagnant, as are wages, and consumers, facing a growing debt overhang and low confidence, are unlikely to muster the will to rescue the economy through a spending binge.
TD’s Craig Alexander said he believes the U.S. has a 40 per cent chance of falling into a recession next year, which could also push Canada near to, or over the edge.