Quebec is in a recession. Maybe. What does that even mean?
Is the situation bad? How bad is it? That’s a matter of significant debate
Like an early, terrible Christmas present for the province, quarterly economic data released by Quebec's statistics agency on Thursday gifted us with a decidedly unfestive concept: a possible recession in Quebec.
Wait, what? A possible recession? Yes, because even though data released Thursday by Quebec's statistics agency satisfies the textbook definition of a recession — two straight quarters of negative GDP growth — politicians and economic experts have several opinions on what it actually means, or whether it's really happening.
Setting aside the definitions and semantics, is the situation bad? How bad is it? That's a matter of significant debate. And the consequences of a few tenths of a per cent for people in Quebec and across Canada could be profound.
Is it a recession?
By definition, yes. But economists say it's not so simple.
Quebec Finance Minister Eric Girard was derided by some on Thursday for writing on social media that it was "too early to declare Quebec to be in a recession" because the drop in growth isn't happening uniformly across economic sectors.
To some this seemed a blatant denial of the latest quarterly economic numbers from the Institut de la statistique du Québec (ISQ), which shows that provincial real GDP shrank by 0.2 percent in the third quarter, following a 0.4 percent drop in the second quarter — two consecutive quarters of negative growth, the definition of a recession.
In comparison, Canada's GDP contracted by 0.3 percent in the third quarter of 2023, after recording a 0.3 percent increase in the second quarter, according to Statistics Canada data.
In a statement sent to CBC, Girard's office acknowledged that the data satisfies the technical definition of a recession. But Girard's call for patience and a more nuanced look isn't from out of economic left field, either. In an interview with CBC, Jimmy Jean, chief economist and strategist with Desjardins Group said that a fuller picture of economic health requires a wider range of indicators, and also more time.
"The data can get revised," he said. "So you don't want to make a call and then have the revised data overturn it."
In a note to investors, National Bank economists Daren King and Mathieu Arseneau also preached patience, even using the phrase "But not so fast!" and advising that "a closer look at the data shows that the situation may be less worrying than it first appears."
What are we actually talking about?
Real gross domestic product (GDP) is an economic statistic that measures the dollar value of goods and services produced in the province — basically, a way of trying to measure whether Quebecers as a whole are making and selling goods and services at a healthy rate.
Generally, the 0.2 percent quarterly drop reported by the ISQ isn't great news.
"If the economy has shrunk 0.2 percent, not only is the economy smaller, somebody is earning less," said Moshe Lander, a senior lecturer in economics at Concordia University. "It is going to show up somewhere."
The ISQ says the GDP contraction in the third quarter was a result of "a deterioration in the trade balance and a slowdown in inventory accumulation." In other words, there was an increase in the ratio of goods imported (imported goods count toward the GDP somewhere else) to goods exported, and businesses also produced relatively fewer goods.
"In times of uncertainty, businesses don't want to accumulate inventory," said Lander.
How bad is it?
Negative growth is usually not great, said Lander, and it will have "distributive effects," which is to say that some people will necessarily feel the consequences.
But there are some signs that Quebecers won't be too hard-hit, and even some ways of seeing the negative growth in a positive light.
First, a nuanced look at the data shows some bright spots. The indicators that pushed Quebec's numbers down, trade balance and inventory accumulation, can fluctuate a lot, Desjardins's Jean said, and are therefore not always reliable indicators of economic health.
He noted that data on consumer spending and the savings rate was more positive. (Girard, the finance minister, also made these points on social media). The National Bank economists also pointed to positive figures for private domestic demand, an indicator of spending by Quebec households.
There's also the argument that a recession needs to happen. Lander offered a "bad analogy" of excessive holiday revelry being followed by a quiet, recuperative January. "For proper physical and mental health, you need a bit of balance," he said.
"The economy has been overheating, having a little bit too much fun since the COVID restrictions were lifted," he said. "That built up a lot of excesses, a lot of imbalances. A recession corrects some of those imbalances."
Why is this happening?
A major reason is the succession of interest rate hikes implemented to counter inflation, which hit uncomfortable heights after the pandemic.
Those rate increases were "designed to slow the economy," said Lander — and their effects are going to be felt everywhere, not just in Quebec.
Quebec might be in a slightly better position because its economy "was probably one of the most overheated in the wake of the pandemic, as evidenced by an unemployment rate that has been well below the national average for some time," the National Bank economists wrote — which means it could better withstand a slowdown than other provinces.
On the other hand, Lander argued that Quebec government policy is to blame for Quebec's numbers turning sour before the rest of Canada. In his view, when a slowdown takes hold, the effects of, for example, the government's immigration policies, language laws and stance toward labour negotiations will become more pronounced.
What happens next?
The short term forecast isn't great, because fourth-quarter data will show the effects of the massive labour strikes currently under way in Quebec.
"We expect to see another contraction," said Jean. "The reason being the strike."
Even without the strikes, Quebec would deal with the same conditions that are likely to make early 2024 "difficult" across Canada, Jean said. "The big picture is an economy rebalancing."
Inflation rates have recently come back down to Earth, but the problem now is that governments need to take care not to drive them up again.
"If there's any thought that the government should increase spending to soften the blow, it's a no-win situation," Lander said, because "that spending would be inflationary."
The National Bank economists' view isn't rosy, but it's not exactly dismal.
"As elsewhere, the year 2024 promises to be fraught with difficulties," they wrote. "But we continue to believe that Quebec's GDP could prove resilient compared to the rest of the country, notably due to the lower level of household debt."
Furthermore, Jean said that whenever the strikes end, "we'll see a rebound," and that further relief will come in the form of interest rates starting to drop.
"Given the progress we've seen on inflation, which we expect to continue to see in early 2024, we think that process will start in April," he said.
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