Canada's Great Recession
By Noah Wheeler

Canada was one of the last of the developed nations to enter the great recession. Although it has 0% GDP growth in Q1-2008, the recession did not officially start until Q4-2008, and lasted until Q3-2009

Canada's recession began the United States, because unlike us, Canada's meltdown was not a result of internal issues, but a result of our issues. Canada's recession was mostly caused by the trade dependency on the United States. Statistics Canada reported that Canada's recession was the shortest and mildest among the countries that make up the G7, lasting only three quarters as compared to between four and six quarters in the rest of the group, and output, as measured by GDP, falling by 3.3 percent from third quarter 2008 to third quarter 2009 as compared to 3.7 percent in the United States.

Compared to the rest of the world, Canada's financial sector was relatively positive. A drop in lumber and car shipments to the United States were allegedly to blame for the majority of the GDP drop, along with a drop in energy prices. Canada's heavy reliance on trade meant that as soon as energy prices dropped and US demand for goods stalled the economy was hurt. While the United States financial sector was reeling, Canada's manufacturing sector was suffering as a result.

How The Government Reacted

Monetary Policy

In terms of Monetary policy, the Canadian Central Bank chose to lower interest rates in an attempt to spur growth. Rates dropped to an record low of .25%. Rather than creating inflation as would be expected, deflation actually became a problem due to a decrease in the consumer price index, mostly owing to decreasing energy prices.

Fiscal Policy

Fiscal policy for Canada was considerably more conservative. Although it was first claimed that they would continue attempts at reducing deficit, when the fiscal policy was finally enacted in 2009.  Corporate taxes were decreased, and some very large subsidies were put in to place, specially targeting the industries hurt most.

  • $8.3 billion for the Canadian Skills and Transition Strategy, to provide support for workers who have lost their jobs and are seeking skills and training development.
  • $7.8 billion in the form of tax credits and spending initiatives to stimulate housing construction.
  • $12 billion in infrastructure stimulus funding over two years, and
  • $7.5 billion for the auto, forestry, and manufacturing sectors.
  • Overall minuscule compared to the American fiscal response.

Reasons For Recovery

Ultimately because the Canadian recession was mostly the result of external factors, Canada was reliant on the United State's recovery for its own. Unlike the US, Canada did not bail out any specific firms or banks. The banks and big business failures in the United States contributed to the decrease in consumer confidence/spending, which severely hurt Canada. Canada's financial sector itself were relatively unharmed which aided recovery. Once demand began to pick back up the Canadian industries that were dragging down GDP began to rebound.