Figures released by Statistics Canada this morning reveal that Canadaâ€™s real GDP dropped by 0.7% in November 2008, its largest monthly decline since a 1.0% drop because of the August 2003 power outage. With the exception of that unique event, Novemberâ€™s decline was the largest since at least February 1997, the oldest month for which precisely comparable figures are available.
Manufacturing was the hardest-hit sector, falling by 2.1% in November. In particular, durable-goods manufacturing dropped by 2.7%, reflecting the reluctance of consumers to make major purchases.
Tuesdayâ€™s federal budget assumed real GDP growth of 0.7% in 2008. By contrast, todayâ€™s figures indicate that real GDP shrank by 0.8% from November 2007 through November 2008. Of course, we will not know the growth or shrinkage rate for 2008 until Statistics Canada releases the December figures and some small components of GDP not captured by the monthly figures. It is still possible that the economy will have grown slightly in 2008 not because of any significant improvement in December 2008, but because a 0.6% decline in December 2007 will lower the base of comparison.
Nevertheless, todayâ€™s numbers give credence to the view that the Bank of Canada should have cut interest rates more and that the Government of Canada should have delivered more fiscal stimulus. Budget 2009 announced $18 billion of new spending and tax cuts for 2009-10, but incorporated the 2008 Economic Statementâ€™s $8 billion of spending cuts and new revenue for 2009-10. Considering both packages, the federal government will provide $10 billion of stimulus, which is only about 0.7% of GDP. In other words, federal stimulus for the coming fiscal year only offsets the economic decline for the most recent month of data.