Flat Gross Domestic Product (GDP) figures for July provide a sobering reminder that the technical end of a recession may not imply a rapid recovery. Output appears to have stopped shrinking, but this morning’s release suggests stabilization rather than growth.
Rounding to the nearest billion, all-industry GDP has been $1,184 billion for three months. It had peaked at $1,241 billion in July 2008. (These figures are in chained 2002 dollars.)
Simply to get out of this hole, Canada’s economy needs to expand by 4.8%. Even if we quickly achieved and sustained brisk growth of 3.6% per year (0.3% per month), it would take the rest of 2009 and all of 2010 just to get back to where we were before the crisis.
Whatever path output takes, the labour market will be even slower to recover. Businesses can initially ramp-up production by having existing employees work more hours and by taking advantage of productivity improvements. Only after exhausting these avenues will most employers start hiring again.
Although the pace of layoffs has slowed, layoffs may still exceed hiring. Hiring must consistently exceed layoffs to increase total employment.
As Statistics Canada reported yesterday, our population has continued to grow. Even when employment returns to pre-crisis levels, it will still be smaller relative to Canada’s potential workforce. Therefore, we seem bound to repeat the experiences of the early 1980s and early 1990s, when unemployment kept rising long after the recession had officially ended.
This outlook underscores the need for greater public investment to propel a more meaningful recovery. Additional stimulus may be needed to get output growing and will certainly be needed to create jobs even after output growth resumes.