Not surprisingly, there has been much spinning on the state of the Canadian economy since the release of figures on September 3  by the Organization for Economic Cooperation and Development (OECD), comparing declines in the western industrialized countries.  After all, with an election possible, the state of the economy will assume great campaign importance.

The only way to cut through the rhetoric is to look at the numbers themselves.  All countries have experienced a decline in output and employment, as we all know.  But by how much?  If we work on the assumption that the world wide recession in all countries hit sometime about mid year of 2008 (many were experiencing problems a bit earlier, although these were more country specific than general), it is interesting to ask what has occurred over the 12 month period following mid-2008.  I have included two periods in the table below.  The first column includes the 9 month period after mid-2008, and the second includes the full 12 months.  I have reported these two different periods because some claim that the the three months from April to July, 2009 is useful in determining the pace at which a country will pull out of the recession, and in predicting who will lag behind in the pace of recovery.  The numbers have particularly relevance to Canada, some claim,

G7:  Country Comparison of Decline of Output

% Drop                         % Drop

July/o8-April/o9      July/o8-July/09

United States                                                        14.5                              15.5

Japan                                                                       28.7                             25.0

Germany                                                                 24.1                             22.8

France                                                                      11.7                              10.3

Italy                                                                          21.7                              23.6

UK                                                                             19.2                              21.8

Canada                                                                     9.4                               12.8

G7                                                                               18.2                            18.3

Source:  Calculated from OECD report

Reading from the table, the G7 countries countries fall into one of two broad categories.  The first is made up of those who have done particularly badly, with a cumulative decline over the 12 month period greater than the average.  This group is made up of Japan, Germany, the UK and Italy, all of whom have had declines of over 20%.  The second is those who have done better than the average.  These include France, which has done the best, followed by Canada, and then the United States.

Canada’s position in second place confirms that things have not been as bad in Canada as in most other industrial countries.  Canada in fact was top of the list in the first nine months of the period, with the smallest drop in output.  Only with the inclusion of  the last 3 month period from April to July, 2009, the second quarter of 2009,  did Canada fall into second place.  This is because Canada was one of only three countries to have a drop in output in the second quarter of 2009 (the other two were Italy and the UK).

The fact that Canada did so well over the first three quarters but relatively badly over the last quarter has revived the argument that Canada will in retrospect be the last in and last out  of this depression.  That may turn out to be true, but it is early to tell.  But the OECD has projected that Canada will be the only country in which output will fall in the second half of 2009.

Even if that turns out to be the case, Canada still can be considered, along with France, as having fared well.  One of the most serious consequences of a depression or recession is that the gap between potential (full employment) output and actual output becomes very large.  Those with the largest gap have the furthest to go to get back to prosperity and have to endure the largest negative impacts, like unemployment, welfare payments, reduced profits, government deficits, and personal and government debt.  Canada, not having dropped nearly so far as most, will carry a considerable smaller cumulative burden in all of these respects over the period.  That is not only good news today, but it also means that Canada will be relatively stronger and thus more competitive when prosperity returns.