Forget the recession. That was yesterday's news.
Bank of Canada Governor Stephen Poloz must now focus on what's going right in the economy, including a nascent export rebound, continued job growth, and strong auto and home sales.
That means the central bank is unlikely to cut interest rates again at its next scheduled rate decision Wednesday, following surprise moves in January and July.
For months now, Mr. Poloz has been anxiously waiting for lower interest rates, the cheaper dollar and a resurgent U.S. economy to take the sting out of the oil-price collapse.
Mr. Poloz finally got a hint of that in the July trade numbers. Canadian merchandise exports grew 2.3 per cent, paced by double-digit gains in autos and aircraft. That helped shrink the trade deficit to its lowest level since last November.
And on Friday there was more evidence that Canada's slump was fleeting, and distinctly unrecession-like. The economy generated another 12,000 jobs in August, proving the country's labour market remains surprisingly resilient. The gains were paced by new full-time and government jobs.
"The economic data released this week indicate that the worst is likely in the rear-view mirror," said Sébastien Lavoie, deputy chief economist at Laurentian Bank Securities.
The economy may now be rebounding faster in the second half than even the Bank of Canada anticipated.
Statistics Canada confirmed this week that the economy contracted in the first half – meeting the most basic litmus test of a recession. Gross domestic product declined 0.5 per cent at an annual rate in the second quarter and by 0.8 per cent in the first quarter.
But few economists are ready to label the first-half slump a recession.
"If this ends up being a recession, it will be the first one ever that did not see the consumer, housing or employment go down for the count," David Rosenberg, chief economist and strategist at Gluskin Sheff, pointed out in a research note.
Bank of Montreal chief economist Douglas Porter sarcastically called it the "best recession, ever." Pointing to the August job gains and a 30-per-cent increase in Porsche sales so far this year in Canada, he added: "Yes, times are tough."
The contraction likely ended three months ago. The economy grew 0.5 per cent in June, setting the stage for a much improved second half.
And while the central bank correctly predicted the first half contraction, it may be underestimating the bounce back. Economists say the third quarter is already looking better than the 1.5-per-cent GDP growth forecast by the central bank.
Investors are still betting Mr. Poloz will cut rates again by early next year, based on the overnight indexed swap rate.
If the rebound in non-energy exports is for real and August's job gains sustainable, another rate cut may be off the table.
A dark cloud still hangs over investment in the energy sector, which makes up about 2 per cent of the economy.
A lot still depends on the price of crude, which remains volatile. The price collapse has put a massive dent in business investment in Canada. And oil and gas producers are continuing to scale back plans and lay off workers. Just last week, there were another 1,000 layoffs in the oil patch. The industry has already shed an estimated 35,000 jobs in Alberta and delayed or cancelled roughly 800,000 barrels a day of oil sands projects.
If crude prices don't recover soon, billions more in oil sands investments could soon be stalled. Concerns surrounds another 500,000 barrels a day worth of ongoing projects that are nearer to completion.
The first-half contraction coupled with uncertainty in the oil patch and the stock market correction suggest the economy remains fragile.
But for now, at least, there is no reason to believe the economy needs more interest-rate relief.
And that's why Mr. Poloz will watch, and wait, this week, while the bank reworks its forecasts and looks to its next rate-setting announcement Oct. 21.