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Tech·ni·cal (adjective): based on or marked by a strict or legal interpretation.

Re·ces·sion (noun): a period of significantly reduced general economic activity that is marked especially by declines in employment and production and that lasts more than a few months.

Tech·ni·cal re·ces·sion: neither of those things.

Canadians are going to hear a lot about “technical recessions” over the next few months, as it looks increasingly like our country is headed for one, if we’re not already in it.

The term is defined as a drop in real gross domestic product in at least two consecutive quarters. Canada booked one such contraction in the second quarter of this year, in which GDP dipped by a 0.2-per-cent annualized rate. Tuesday’s monthly report from Statistics Canada, covering August as well as an advance estimate for September, suggested that GDP was ever-so-slightly lower in the third quarter, too.

The thing is, that’s no one’s serious definition of a recession.

At best, a two-quarter GDP contraction is a loose rule of thumb for one of several conditions necessary to elevate an economic downturn to the status of “recession.” It’s not particularly “technical”: Just read the quarterly GDP figures and be able to count up to two. And it is insufficient, on its own, to identify a “recession.” It’s one of the greatest empty-yet-loaded phrases in the modern economic lexicon.

Canadian economy stalls as higher interest rates weigh on growth

Where the term originated is unclear. It started to work its way into newspapers about 50 years ago, but it wasn’t until around 1990 that the phrase began to take hold in day-to-day economic coverage. By the early 2000s, “technical recession” – and its two-consecutive-quarters definition – had achieved wide acceptance in the North American economic coverage.

But it was never a recession definition that economists and organizations that track the business cycle found particularly compelling – other than, perhaps, as a reasonable starting point from which to begin a discussion about whether a true recession might have begun.

The National Bureau of Economic Research, the independent U.S. organization that serves as the official arbiter of when recessions in that country begin and end, describes a recession as “a significant decline in economic activity that is spread across the economy and that lasts more than a few months.” The C.D. Howe Institute’s Business Cycle Council, which provides independent analysis of recessions in Canada, uses similar language, defining a recession as “a pronounced, persistent, and pervasive decline in aggregate economic activity.”

Both bodies agree that a slump must qualify on three dimensions – depth, breadth and length. Slowdowns that barely dip into contraction territory; that only affect some elements, industries or regions of the economy; and/or that last only briefly – these are not recessions.

Canada’s current downturn might qualify on one of these criteria: GDP may have had a two-quarter contraction, probably the bare minimum to meet the length requirement.

But this is shaping up as the shallowest two-quarter contraction in more than six decades of data. These are far from the kinds of GDP losses we have experienced in even mild recessions of the past.

What’s more, the country’s unemployment rate, at 5.5 per cent, is not only remarkably low for an economic contraction, it’s remarkably low, period. In the decade prior to the COVID-19 pandemic, average monthly unemployment was nearly 7 per cent. In those 120 months, it was lower than the current rate of 5.5 per cent exactly once.

Nor has this economic slump been particularly broad-based. The GDP reports for the second quarter, and for the first two months of the third quarter, showed a nearly even split between the number of sectors contracting and growing.

It should be noted, though, that these three dimensions – length, depth, breadth – don’t require equal weighting to consider a downturn to be a recession. For example, if the economy were to shrink for, say, four or five consecutive quarters, it would be pretty hard to argue that such a prolonged slump wasn’t a recession, even if each quarterly dip was small.

That’s a scenario that might still lie ahead for the Canadian economy. The Bank of Canada’s latest economic forecasts, published last week, predict GDP growth of just 0.9 per cent for all of 2024. That’s arithmetically possible without any quarters of contraction, but just barely. Realistically, growth that weak implies a pretty good chance for a negative quarter or two next year – on top of the negative couple of quarters that we’re likely to book in 2023. (The final quarter of this year will likely dance on the edge, too.)

The outlook suggests that the recession we need to worry about in this cycle, in a very concrete and meaningful sense, is one where stagnation becomes entrenched and pervasive. The longer an economy flounders, the more scarring is inflicted – and the more difficult a recovery can become.

Two small quarterly GDP dips don’t get us there. But they are a warning sign. The road ahead may prove more treacherous than the “technical recession” – or whatever you want to call it – that brought us here.

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