This aftermath is very different from the usual pattern of weakness in the economy, during which slack opens up, resulting in a prospect for continuing disinflation during the early years of the ensuing expansion.
Weak external demand, combined with the deterioration in Canadian competitiveness in recent years, has led to sharp contractions in Canada’s trade balance and a return to current account deficits. Thus, despite the advantages I noted a moment ago, Canada’s recovery has been relatively modest in comparison with previous cycles, and has relied heavily on household and government spending.