After two consecutive quarters of GDP contraction, Canada entered a technical recession in the first half of 2015 – yet very few people seemed to notice, or care…

Even after the latest GDP numbers, released on October 30th, which showed real GDP at a measly 0.1% in August, few seemed bothered. Much of the domestic mainstream media seemingly brushed it off. And prior to the latest weak numbers, Jamie Sturgeon from Global News wrote an article titled, Three words to sum up Canada’s economy: ‘Best. Recession. Ever.’

But the reality is, Canada’s economy is on the brink of collapse.

source: Zero Hedge


The factors which led to Canada’s economy contracting in the first 5 months of 2015 are more serious today than they were in Q2. Oil hasn’t recovered and the country’s reported unemployment rate (October 2015) remains decidedly high at 7%. Canada’s fastest growing metropolis for much of the last three to four years (Calgary) is arguably in a worse recession than 2008.

*The Calgary Herald reported that in 2015, “Group layoffs in Alberta have soared to more than 14,000 people as of the end of September with the oilpatch taking up a lion’s share of that growing total.”


You can find swaths of vacant office suites in the typically bustling Calgary downtown core. New layoff announcements remain a constant in local papers. Employment insurance in what was once Canada’s wealthiest city is going to run dry for many unemployed homeowners over the next six months. Pessimism in the city that boasts to have the most entrepreneurs per capita is skyrocketing. Furthermore, national household debt compared with income ticked up to a record (leverage ratio of 164.6%) in the second quarter of 2015.

So behind the cloud of optimism surrounding the newly elected Liberal Government, Canada is still home to a struggling economy. And here’s what’s really concerning us about the Great White North…


Money is leaving Canada’s Economy at the fastest pace in all of the developed world

Bloomberg reported,

“According to BofA’s Kamal Sharma, Canada’s basic balance – a combination of the capital and the current account: a measure of national accounts that spans everything from trade to financial-market flows – swung from a surplus of 4.2% of GDP to a deficit of 7.9% in the 12 months ending in June. That’s the fastest one-year deterioration among 10 major developed nations.”



Canada is in the far bottom left (chart above), alongside oil-dependent Norway. The Scandinavian country posted total export value of oil and gas in 2014 of approximately NOK 550 billion, representing about 46% of its total exports.



So, why is capital abandoning Canada for greener pastures?

The short and obvious answer is the continued weakness in the price of oil and ripple effect it’s having on the manufacturers and services that thrive when the industry is in expansion mode. Previous ‘no-brainer’investments in Canada’s conventional and unconventional energy sector have had their unprofitable nature painfully revealed by sub-$50 oil. Sadly, many projects will be given the pass even at sub-$70 oil. As such, we need to prepare for what could be a lasting contraction in this space.

In a Bloomberg article titled Money Flooding Out of Canada at Fastest Pace in Developed World, Alvise Marino, a foreign-exchange strategist at Credit Suisse Group AG in New York, commented:

“The policy in Canada the last 10 years has greatly favored investments in energy. Now the drop in oil prices made all that investment unprofitable.”


In an early November, 2015 article, articulated the speed at which capital is fleeing Canada’s oil sector:

“The slump has derailed projects this year in Canada’s oil sands – one of the world’s most expensive crude-producing regions. Royal Dutch Shell Plc’s decision to put its Carmon Creek drilling project on ice last week lengthened that list to 18, according to ARC Financial Corp.”


In late-October, the Globe and Mail reported:

“More corporate cuts are expected in the coming months as companies struggle to keep costs in line with dwindling returns, and outside investment remains elusive, said Jackie Forrest, vice-president of ARC Financial Corp. in Calgary.”


As of July 2015, the below development was forecasted for the natural resource sector:

source: Natural Resources Canada, provincial and territorial governments, specialized databases, various company websites.


With WTI stubbornly below $50, expect at least half, if not three quarters, of the ‘Energy’ blue bar above (representing planned projects) to disappear from Canada’s economy for the foreseeable future. This alone could be a $200 billion hit, not to mention all of the subsidiary industries that will lose out. Adding to the low-price environment are worries from both domestic and foreign investors of a potential royalty hike for Alberta-based oil and gas companies. Uncertainty is a killer of confidence.

Newly elected NDP Alberta Premier Rachel Notley has been faced with an approximate 69% drop in energy revenue thus far in 2015. To the surprise of her critics, however, in early October she said that getting a pipeline built to a port for ocean-going tankers is a priority.

Notley will need a favorable environment for energy companies to operate in and higher oil prices to make any projects of this nature feasible. She also has plans to end Alberta’s reliance on oil and natural gas royalties, which currently account for roughly 1/3 of operational expenditures on schools, hospitals and roads.

In early October, speaking at Bloomberg headquarters in New York, she commented:

“To phase out of that can’t be done overnight, but certainly in the long term we think that that’s what we need to be able to do because that gives the government more security, more predictability, more sustainability in terms of our services, and we’re not held hostage to international commodity prices.”



Right-wing columnist, lawyer, and founder of, Ezra Levant, wrote that:

“…literally within hours of Notley’s attack budget being released, Shell cancelled its Carmon Creek oilsands project – and the 1,200 construction jobs and 250 permanent jobs that went with it.

Shell had said the project was a “go” as recently as March, when oil prices were in the $40s. But after the NDP government confirmed Shell’s worst fears in the budget – Shell knew that they had to take their business elsewhere.”




Although production of crude oil directly represents just 3% of Canada’s GDP, indirectly the nation’s oil has lured in foreign investment in infrastructure, construction, refinement process and created a vibrant service sector in past years. That makes the oil sector integral to Canada’s overall economy, both past and future. The decline in oil prices has played a large role in the decision of many multinationals to pass on Canada, and particularly the oil sands.

For some context of just how important energy and resources are to Canada, “the stock of foreign direct investment in Canada’s natural resource sectors was valued at $271 billion in 2014, representing 37% of total foreign direct investment.”

Nearly 40% of all foreign investment into this country is targeted to natural resources. What makes today’s recession so potentially dangerous, and lasting, is that foreign investment is drying up at the same time capital outflows are increasing. If prolonged, this trend could have a disastrous impact on Canada’s economy; and Generation Z (adults aged 19-24), who will be leaving university soon likely riddled with debt, won’t have strong job prospects.


Canadian Capital Outflows threaten Recession as Oil Plunges



A Misleading Jobs Report Keeping Canadians Content

Much of Canada’s mainstream media, and the less informed, rebuke the argument that the economy is in trouble by pointing to the nation’s recent job growth as a positive indicator. October’s jobs report, which showed 44,000 new full-time positions, is no reason to celebrate. Let’s take a closer look at the details.

The gains were in three distinct industries:

In October, employment increased by 32,000 in public administration. Statistics Canada reported that:

“The increase was seen across all provinces and mostly in temporary work, coinciding with activities related to the recent federal election.”


Right there you can put a question mark beside roughly 32,000 jobs created in October.

The wholesale and retail industries ticked up, adding 18,000 full-time positions. Finally, employment increased in accommodation and food services, rising 13,000 in October.

The gains made last month were in the public sector, retail and the service economy. The majority of these ‘jobs’ do not create careers. Meanwhile, the number of self-employed workers was down 27,000 in October alone – a startling stat.

In case you were wondering, natural resources employment continued its downward trend that began a year ago, shedding 8,000 jobs in October alone. This brings the total losses to 26,000 (-6.9%) over the past 12 months. Not surprisingly, Statistics Canada noted that the majority of the declines were in Alberta.


Canada Economy won’t get bailed out by China and the US

Canada’s sharp, world leading rebound out of the 2008 financial crisis was due largely to natural resource exports. That won’t save us this time. With China’s growth slowing and the US emerging as the world’s largest producer of oil (perhaps another reason for the Keystone pipeline not getting approved), Canada will have to look within to boost growth.

Canada has to diversify… quickly.

In a recent Weekly Volume we highlighted 3 sectors to benefit following the new Liberal Party victory: infrastructure (relating to transportation), startup technology and marijuana.

Read: Trudeau Bets $1 Billion on this Sector

To achieve the necessary tax revenue and avoid slipping into a sustained recession, the country’s manufacturing sector has to get more competitive. The Canadian dollar is already near multi-year lows against a basket of its peers, but if you thought the sell-off in the Loonie was overdone or nearing completion, guess again.

Zero Hedge reported,

“Bloomberg calculates that more weakness for the CAD, and more capital outflows, are on deck as the Canadian dollar has to get cheaper to make Canadian businesses outside of the oil industry competitive enough with foreign peers to make them worth investing in, according to Benjamin Reitzes, an economist at Bank of Montreal.”


It should be noted that it takes time for a weak currency to seep its way into the economy. This supposed ‘competitive edge’ likely won’t show its true impact until late-2016.

In an article by Greg Keller of the Associated Press titled, OECD Warns Of Global Recession Over ‘Deeply Concerning’ Trade Figures further headwinds to Canada’s slowing economy are revealed.

The OECD estimates the United States will grow 2.4% in 2015, 2.5% in 2016 and 2.4% in 2017 – outpacing most other G7 countries (including Canada) by a wide margin each year.

The OECD report also warned that a slowdown in international trade is “deeply concerning” and could be signalling a new recession for the world’s leading economies.


Canada is an export nation. Global recessions hit us hard as demand for our resources decline.

And even the U.S. isn’t as strong as it may appear to be…

In July of this year the Federal Reserve reported that it had accidentally published internal staff forecasts for interest rates, unemployment and other key indicators. We wrote about the occurrence immediately in an article titled, The Fed’s Confidence Game Exposed.

Check out the Real GDP numbers, Core PCE inflation and most importantly, the trajectory of the Federal Funds rate outlined by the Fed below:



The silver lining of a slowing US economy is that the Federal Reserve will be forced to weaken the US dollar, which is currently flirting with a 12-year high.  Excessive money printing south of the border, as you know, was a boon for Canada’s natural resource industry (particularly oil) from 2010 through mid-2014.

Canada’s Economy has to Diversify

The next time the mainstream media brushes off the severity of Canada’s economic decline, you know the truth. The threats facing Canada’s natural resource sector are real and could be lasting. Expect the Canadian dollar to continue to weaken and interest rates to remain low.

To rebound from this investment exodus, Canada will have to innovate and create. A weaker currency and a new government motivated to see tech and other sectors flourish should ultimately help the Great White North become a more balanced economy.

All the best with your investments,



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