Canada’s Great Recession

Canada’s Great Recession started in November 2008 and lasted seven months until May 2009, says the C.D. Howe Institute’s newly established Business Cycle Council.

The Business Cycle Council, which comprises a panel of expert business and academic macroeconomists and economic historians, has established a common set of reference dates for historical recessions in Canada starting in 1929. The Council defines a recession as “a pronounced, pervasive and persistent decline in aggregate economic activity, typically resulting in a cumulative decline over adjacent quarters.”

Although the Canadian economy began to soften in December 2007, the recession didn’t get traction until the third quarter of 2008. In mid-September 2008, notes the Council, investment banker Lehman Brothers failed in the U.S., setting off a chain reaction in financial markets that effectively froze credit flows. “By November, plummeting global export demand and a collapse in commodity prices was evident through rapid declines in output and jobs, which persisted until early May.”

The Council also adopted a classification system that allows grouping recessions according to their severity from Category 1, the mildest, to Category 5, the most severe. Category 1 recessions have only a short, mild drop in GDP and no decline in quarterly employment. At the other extreme, Category 5 recessions involve extremely rapid contractions of the economy over an extended period of time.