Macroscope | Canada may be too late to fix economy with quantitative easing

It is no surprise Canada has slipped back into recession again - its second lapse into negative growth since 2009. Just how long it lasts depends on how the global economy shapes up. Right now, the outlook looks far from encouraging.

Canada might have to brace for worse to come and policymakers need to think outside the box for answers. This should be a cue for special measures in the footsteps of other major Group of Seven central banks. Quantitative easing could be coming to Canada quite soon.

Being such a resource-rich country, Canada has always been a sensitive barometer for the world's economic well-being. If global growth prospects start to slow and the demand for commodities takes a dive, Canada is generally first in line to feel the effects.

This is happening right now with Canada hit by two consecutive quarters of negative growth, the technical definition of recession. Real gross domestic product growth sank 0.5 per cent in the second quarter after a 0.8 per cent contraction in the first three months of the year.

Canada's traditional strength in natural resources has turned into a fatal flaw as commodity prices have tumbled. With crude oil prices collapsing 50 per cent over the past year, Canada's oil and gas sector has taken a very heavy knock. In the last quarter alone, output in the mining, quarrying and energy sector has sunk 4.5 per cent.

Even though some analysts are saying Canada has seen the worst of the downturn, it is hard to reconcile this speculation with events outside the country. It is more like wishful thinking.

With the spotlight on slower growth in China, world trade flows plunging 10 per cent from a year ago and stock markets still on shaky ground, the growth outlook is highly vulnerable. Nothing suggests global demand for commodities or prices are anywhere close to a bottom yet.