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Canada\u2019s economy shrank in the second quarter and recent readings showed it may have contracted again in the third, prompting plenty of the talk that the country could be entering \u2014 or already in \u2014 a \u201ctechnical recession.\u201d But what exactly does that term mean and how does it differ from a full-fledged recession? The Financial Post\u2019s Ian Vandaelle explains.<\/em><\/p>\nWhat exactly is a \u2018technical recession\u2019?<\/strong><\/h2>\n<\/section>\n\nArticle content<\/p>\n<\/section>\n
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The technical definition of a recession, in its simplest terms, is two consecutive quarters of contracting economic output. If GDP declines for two straight quarters, then, \u201ctechnically\u201d speaking, we are in a recession. This definition, however, doesn\u2019t discriminate when it comes to the depth or breadth of the contraction: two consecutive quarters of negative 0.1 per cent growth and two straight quarters of, say, negative three per cent growth, both meet the definition, but the latter scenario would be much more painful and noticeable. We usually hear the term \u201ctechnical recession\u201d more often when the declines are small and the downturn is not expected to be too painful.<\/p>\n
What turns a technical recession into a full-blown recession?
<\/strong><\/h2>\nThe C.D. Howe Business Cycle Council \u2014 which is an authority on recessions in Canada \u2014 says a downturn turns into a recession \u201cif there is, broadly speaking, a pronounced, persistent, and pervasive decline in aggregate economic activity.\u201d In other words, the questions to ask are: how deep is the drop in output, how long does it last and how many sectors does it impact?<\/p>\n<\/section>\n