Bank of Canada officials concluded that, despite weak activity and slack in the labour market, the economy did not meet their definition of a recession when they decided to keep the policy rate unchanged earlier this month.
In a summary of deliberations from the June 10 decision, officials cited negative annualized growth in the first quarter but stopped short of declaring a recession. Real gross domestic product fell by 0.1% on an annualized basis in the first three months of the year, following a 1% decline in the fourth quarter, the summary said.
Officials emphasized their working definition of a recession, noting:
and added:"Members agreed a recession is characterized by a deep, widespread and persistent decline in aggregate economic activity,"
"The economy was weak; it was still operating in excess supply and there was slack in the labor market. But the economy was not clearly in recession."
The central bank identified a sharp fall in spending on weapons systems as a key driver behind the unexpected contraction in the first quarter. At the same time, officials pointed out that consumer spending rose and that the bank anticipated a return to growth in the second quarter.
Policymakers voted to maintain the policy rate at 2.25% on June 10. In the meeting summary they described facing a "dilemma" - limited scope to use rate changes in a way that both supports economic expansion and prevents higher oil prices from feeding into broader price pressures. The statement said that the path for borrowing costs was highly dependent on energy prices.
Those observations were consistent with the broader view among economists and market analysts that it is premature to label the recent weakness as a recession. Labour-market data released for May showed an unexpected increase in employment, which pushed the unemployment rate down to 6.6%.
Taken together, the Bank of Canada framed its June decision as one rooted in mixed signals: output figures that slipped into contraction, spending patterns that were uneven across sectors, and labour-market readings that offered a degree of resilience. Policymakers left open the possibility of future action, tying their path for interest rates to developments in energy prices and the evolution of economic activity.