John Morrissy, Financial Post  Published: Monday, November 30, 2009 

OTTAWA - The end to the recession didn't come with a bang but with a whimper.

 

Nevertheless, the news Monday that the Canadian economy eked a slim gain in the last quarter made it official: The nine-month ordeal is over.

 

The data from Statistics Canada showed the economy grew at an annual rate of 0.4 per cent in the third quarter, far lower than the one per cent growth economists had forecast and the two per cent the Bank of Canada had called for.

 

Yet it marked the country's emergence, at least numerically, from a period in which the financial crisis threatened the world's banking system, stock markets plunged into an abyss, and hundreds of thousands of Canadians were thrown out of work.

 

Economists welcomed the news, although they cautioned that the data on gross domestic product, or GDP, contained troubling signs.

 

"The Canadian economy is erratically grinding out of recession, led by broad-based gains in domestic spending," said BMO Capital Markets economist Douglas Porter.

 

The numbers were "not exactly a clanging endorsement of the 'end of recession' story . . . but they set the table for a much better fourth quarter."

 

For all the pain it brought, this recession was in fact less severe than those experienced in the early '90s and early '80s in terms of duration, the unemployment rate and the decline in economic growth.

 

It was the domestic economy that saved the day.

 

"Canada didn't have the credit problems that they had in the U.S. and elsewhere," said Diana Petramala, an economist at TD Economics.

 

"That allowed Canadian businesses and consumers to take advantage of low borrowing rates that other countries couldn't capitalize on,"she said.

 

That availability of credit helped fuel a dramatic turnaround in the national housing market, and should help push the economy ahead as recent home buyers buy furniture and carry out home renovations, she said.

 

Furthermore, she said, Monday's data showed a sharp rise in domestic demand, in terms of personal consumer expenditures and a 25 per cent increase in business investment in machinery and equipment, a rate of growth not seen since 1997.

 

Yet that's where the troubling signs emerge. All that spending by businesses, governments and consumers barely nudged our economic output.

 

"Canadians are spending, but not on what we make at home," cautioned Avery Shenfeld, chief economist at CIBC World Markets. Instead the spending went to imported goods.

 

"We tend to focus on the fear that our exports will be restrained by the higher dollar but we could also see the impact of the strong currency on importers gaining market share in the Canadian domestic economy."

 

"It's likely to be an ongoing area of concern."

 

The result was barely discernible annualized growth of 0.4 per cent, a far cry from the 2.8 per cent growth recorded by the U.S. in the third quarter.

 

"We're out of the recession but the jury is still out on the pace of growth for 2010.

 

"We may face a somewhat less than typical first year of recovery, largely because of the strength of the Canadian dollar but also because of the potential for growth t next year to disappoint in terms of the global economy," Shenfeld said.

 

Q3 GDP (% change from previous quarter / annualized / year-over-year):

 

First quarter 2008 -0.2 / -0.7 / +1.7

 

Second quarter 2008 +0.1 / +0.3 / +0.7

 

Third quarter 2008 +0.1 / +0.4 / +0.3

 

Fourth quarter 2008 -0.9 / -3.7 / -1.0

 

First quarter 2009 -1.6 / -6.2 / -2.3

 

Second quarter 2009 -0.8 / -3.1 / -3.2

 

Third quarter 2009 +0.1 / +0.4 / -3.2

 

Source: Statistics Canada