4.4.3 Identifying Recessions

Learn how to identify recessions based on depth, duration, and diffusion criteria as defined by Statistics Canada. Explore examples of economic slowdowns and recessions in Canada.

4.4.3 Identifying Recessions

Identifying Recessions

Statistics Canada judges a recession by the depth, duration, and diffusion of the decline in business activity.

Criteria for Identifying Recessions

Its judgment is based on the following criteria:

Depth

The decline must be of substantial depth. For example, marginal declines in output can be merely statistical errors.

Duration

The decline must last more than a couple of months. For example, bad weather alone can cause a temporary decline in output.

Diffusion

The decline must be a feature of the whole economy. For example, a strike in a major industry can cause GDP to decline, but that lone incident does not constitute a recession for the whole country.

Did You Know? Recent Economic Slowdowns and Recessions in Canada

DATES DURATION
April 2001 to September 2001 5 months
July 2008 to July 2009 12 months
January 2015 to June 2015 6 months

In March 2020, Canada’s GDP fell by more than 7%, and Statistics Canada at the time of writing was predicting a decline of more than 11% in April. Canada has experienced the steepest and fastest decline in decades, and given the severity of the drop in GDP, some economists assert that Canada entered a recession in the first quarter of 2020.

Note: Technically, this was a growth slowdown or downturn, not a recession.

Source: Adapted from Statistics Canada, www.statcan.gc.ca.

Key Takeaways

  • Recession Identification: Recessions are identified based on depth, duration, and diffusion criteria.
  • Examples in Canada: Historical data show various periods of economic slowdowns and recessions in recent Canadian history.
  • 2020 GDP Drop: Canada experienced significant economic decline in early 2020, potentially entering a recession.

Glossary

  • Recession: A period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.
  • GDP (Gross Domestic Product): The total value of goods produced and services provided in a country during one year.
  • Depth: Substantial decline in economic activity.
  • Duration: The period over which economic decline occurs.
  • Diffusion: The extent to which the economic decline affects the whole economy.

FAQs

What is a recession?

A recession is a period of temporary economic decline during which trade and industrial activity are reduced, generally identified by a fall in GDP in two successive quarters.

How does Statistics Canada identify a recession?

Statistics Canada uses three criteria to identify a recession: depth, duration, and diffusion. The decline must be substantial, last more than a couple of months, and affect the whole economy.

When has Canada experienced recessions in recent history?

Recent economic slowdowns and recessions in Canada occurred from April 2001 to September 2001, July 2008 to July 2009, and January 2015 to June 2015.

Did Canada enter a recession in 2020?

In March 2020, Canada’s GDP fell by more than 7%, leading some economists to assert that Canada entered a recession in the first quarter of 2020 given the severity of the drop in GDP.

    gantt
	    title Economic Slowdowns and Recessions in Canada
	    dateFormat YYYY-MM
	    section Recessions
	        April 2001 to September 2001 :active, 2001-04, 2001-09
	        July 2008 to July 2009 :active, 2008-07, 2009-07
	        January 2015 to June 2015 :active, 2015-01, 2015-06

📚✨ Quiz Time! ✨📚

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Welcome to the Knowledge Checkpoint! You’ll find 10 carefully curated quizzes designed to reinforce the key concepts covered. These questions will help you gauge your grasp of the material, identify areas that need further review, and ensure you’re on the right track towards mastering the content for the Canadian Securities certification exams. Take your time, think critically, and use these quizzes as a tool to enhance your learning journey. 📘✨

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## What criteria does Statistics Canada use to judge a recession? - [ ] Inflation, unemployment, and interest rates - [ ] GDP growth, stock market performance, and trade balance - [x] Depth, duration, and diffusion of decline in business activity - [ ] Consumer confidence, currency value, and housing market > **Explanation:** Statistics Canada uses the depth, duration, and diffusion of the decline in business activity to determine if there is a recession. ## What does "depth" refer to in the context of identifying a recession? - [ ] The geographical scope of the decline in business activity - [x] The substantiality of the decline in business activity - [ ] The length of time the decline continues - [ ] The sectors affected by the decline > **Explanation:** "Depth" refers to the necessity for the decline to be substantial, and not just marginal output declines that could be statistical errors. ## How long must the decline in business activity last to meet Statistics Canada’s "duration" criterion for a recession? - [ ] At least one month - [x] More than a couple of months - [ ] At least six months - [ ] More than a year > **Explanation:** Statistics Canada requires the decline to last more than a couple of months to meet the duration criterion for identifying a recession. ## What characterizes the "diffusion" criterion used by Statistics Canada to identify a recession? - [x] The decline must affect the entire economy - [ ] The decline must remain limited to a specific sector - [ ] The decline must affect international trade - [ ] The decline must be caused by bad weather conditions > **Explanation:** The decline in business activity must affect the whole economy to meet the diffusion criterion, not just a single sector. ## Which of the following periods was identified as a growth slowdown but not a recession in Canada? - [ ] April 2001 to September 2001 - [ ] July 2008 to July 2009 - [x] January 2015 to June 2015 - [ ] March 2020 (first quarter) > **Explanation:** The period from January 2015 to June 2015 was identified as a growth slowdown, not a recession. ## How much did Canada’s GDP fall by in March 2020? - [x] More than 7% - [ ] Exactly 5% - [ ] Less than 2% - [ ] More than 11% > **Explanation:** In March 2020, Canada’s GDP fell by more than 7%, which was a significant decline. ## During which periods did Canada experience a recession as identified in the text? - [ ] April 2001 to September 2001 and January 2015 to June 2015 - [x] April 2001 to September 2001 and July 2008 to July 2009 - [ ] July 2008 to July 2009 and January 2015 to June 2015 - [ ] January 2015 to June 2015 and March 2020 > **Explanation:** Canada experienced recessions during April 2001 to September 2001 and July 2008 to July 2009 as per Statistics Canada's criteria. ## How long did the recession last in Canada from April 2001? - [x] 5 months - [ ] 6 months - [ ] 9 months - [ ] 12 months > **Explanation:** The recession in Canada lasted from April 2001 to September 2001, totaling 5 months. ## According to some economists, when did Canada enter a recession due to the COVID-19 pandemic? - [ ] In the last quarter of 2019 - [ ] April 2020 - [x] The first quarter of 2020 - [ ] The second quarter of 2020 > **Explanation:** Some economists assert that Canada entered a recession in the first quarter of 2020 due to the severe drop in GDP caused by the COVID-19 pandemic. ## By how much was GDP predicted to decline in April 2020 by Statistics Canada? - [ ] 5% - [ ] 7% - [ ] 9% - [x] More than 11% > **Explanation:** Statistics Canada predicted a decline of more than 11% in GDP in April 2020.

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