On Tuesday, StatsCanada revealed the Canadian economy officially entered a recession. The country’s economy contracted by 0.5% during the previous three months, marking the second straight quarter of falling economic activity. (Source: Gross domestic product by industry, September 1, 2015.)
The numbers only get uglier as you dig into the report. Plunging commodity prices took a toll as did business investment, with a 4.5% drop in the mining and energy sector. Business investment sank by an annualized 7.9% as spending on machinery, equipment, and non-residential structures collapsed.
More alarming, new data revealed Canada’s contraction is even worse than previously thought. In addition to its latest numbers, StatsCan also revised its first quarter gross domestic product (GDP) reading down to 0.8%, from 0.6% in an earlier report. With two back-to-back quarters of contraction, Canada’s economy now meets the technical definition of a recession for the first half of the year.
But it gets worse. On Tuesday, global Purchasing Manager’s Index (PMI) manufacturing surveys were released around the world, giving us an early read on the state of manufacturing. Of the 28 regions that have reported so far, 19 recorded a contraction in their manufacturing sectors last month. Emerging countries like China, South Africa, and Turkey saw noticeable drops. (Source: Bank of America, September 1, 2015.)
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These numbers should come as no surprise to anyone that has been paying attention to the market over the last few months. China’s stock market crash signals the country’s days of double-digit growth are over—and the resource that came along with it. Commodity exporters like Canada are first in line to feel the pain.
Needless to say, this is hardly the type of data Federal Reserve Chair Janet Yellen wants to see before raising interest rates. Central banks around the world are far more likely to start cranking up the printing presses, kicking the day of reckoning down the road a few more months.
But absent some sort of emergency government stimulus, one thing is for sure: we’re just starting to feel the consequences of China’s stock market crash. Batten down the hatches!