Canada is not technically in a recession, but to the vast majority of consumers, it feels like one.
Economists, Statistics Canada and the Bank of Canada have been telling Canadians the country has been out of a slump since mid-2009, and is now well into a period of expansion. But Canadians see things differently. Despite the economy's relative strong health in a world marked by tumult, they are the most pessimistic they've been in over a decade – and fully 70 per cent believe the nation is in a recession, according to an annual tracking poll released Thursday.
Michael Marzolini, chairman of the Pollara Strategic Insights, which conducted the poll, suggests this fear could itself feed into a cycle of consumer angst, which could contribute to a general slowing of the economy.
"Public attitudes toward the economy usually drive events. They impact on people's collective spending, investing and saving," Mr. Marzolini said. "The perceived reality … is often a self-fulfilling prophecy."
While most economists don't see low confidence dragging the country into a recession, they say it's something that should not be ignored – just as they caution that a worse-than-expected recession in Europe could drag down Canada's economic output further than is now predicted.
The annual poll of between 2,000 and 3,000 Canadians, conducted every December, showed that 65 per cent of Canadians thought the country was in recession at the end of 2010, and that 78 per cent thought the same at the end of 2009. In both cases, they were wrong: Canada's last recession officially lasted from the fourth quarter of 2008 until the second quarter of 2009.
The findings left economists scratching their heads. "I think there is a bit of a disconnect between that survey and the economy," said Douglas Porter, deputy chief economist with BMO Capital Markets.
But to others, the results were far from surprising. David MacDonald, chief executive officer of Toronto-based technology service firm Softchoice Corp., said many individual Canadians are worried about their jobs, and whether their skills match those needed by industry. "It has been a tough, tough recession on young people," he said.
There has certainly been an ample amount of economic news of late to trouble Canadians, including the fiscal and monetary crisis in Europe, volatility on capital markets, hints of a possible slowdown in China, rising oil prices and negative employment numbers in Canada in three of the past four quarters. And household debt has reached record levels in Canada, prompting Bank of Canada Governor Mark Carney to warn last month that "our greatest domestic risk relates to household finances." Meanwhile, forecasters have warned that Canada's 13-year housing boom has reached its end.
On top of that, economists said, the average Canadian doesn't realize that a recession is actually defined as two quarters of negative growth, and doesn't refer to a period of uncertainty. On average, economists expect Canada will post 2.3-per-cent growth in gross domestic product (GDP) in 2011, and a 2-per-cent gain in 2012, according to survey firm Consensus Economics.
"I think people interpret the question to mean, 'Have we fully recovered [and reached a state of full employment]'" said Avery Shenfeld, chief economist with CIBC. "Canadians aren't so much saying that we're in a recession as economists define it, but they are saying that we're not back to normal yet."
Mr. Porter said the darkening mood of Canadians might not necessarily point to a slowing economy to come. If anything, he said, "there have been more false alarms [where consumer confidence fell]than cases where it acted as an early warning system" for a decline in GDP.
Peter Aceto, chief executive officer of on-line bank ING Direct Canada, said the pessimism among the Canadian public is likely a reflection of the flow of troubling economic news from around the world. "When you look at the stock market, when you look at what is going on in the U.S., and particularly if you look at what is going on in Europe … depending what day of the week it is, there is a tremendous amount of volatility," he said.
The picture will develop further on Friday, when Statistics Canada releases employment numbers for December. The consensus among economists is that the Canadian economy added 15,000 jobs last month. Meanwhile, the Bank of Canada will release its latest quarterly Business Outlook Survey, a poll of 100 firms on their view of the economy, on Monday, offering another key reading
Results of the Pollara online poll were collected Dec. 1 to 7 from a panel of 2,878 people across Canada. Technically a margin of error can't be quoted for an online poll, but a random sample of similar size would yield a 1.8-per-cent accuracy margin.