By Keith Halliday -- Emerging from a recession: Keep the Gravol close at hand

Are you wondering when this downturn will end and economic good times return North of Sixty? This summer marked two years since the subprime crisis began and it’s been 18 months since the U.S. tipped into recession. Isn’t that long enough?

Unfortunately, as you’ve probably heard if you haven’t been on the trapline for the last two years, this downturn is different. Economists at the International Monetary Fund report that recessions preceded by a banking crisis can be two-to-three times deeper and two-to-four times longer than typical slowdowns.
The good news is that the North was relatively insulated from the mayhem in global financial markets, at least compared to Iceland, which suffered a near collapse of its banking system, or the United States, where the unemployment rate in 18 major cities is over 15 per cent. Unemployment in the NWT and the Yukon was better than the Canadian average of 8.6 per cent in July, according to Statistics Canada, although Nunavut’s figure (calculated on a different basis) was over 14 per cent. That it wasn’t worse was due to Canada’s relatively strong national performance and the North’s steady transfer payments from Ottawa.
But even though most Northerners have escaped relatively unscathed, there were pockets of extreme pain. Many mining companies saw their capital dry up, with the number of share issues by mining and resource companies down two-thirds in the last quarter of 2008 from a year earlier. The amount of capital raised was down almost 90 per cent. Resource industry bond issues and borrowing essentially disappeared.

The tourism sector also experienced pain, with more than one operator plunged into the red as visitor numbers and spending shrank. The United Nations’ World Tourism Organization says visitor numbers will be down globally by around eight per cent this year. Northern tourism operators are reporting varied results, but even those like the MacBride Museum in Whitehorse, which has a steady number of visitors, have seen spending per tourist go down.

The news looks to be getting slightly better. Bank of Canada Governor Mark Carney reported in July that Canada was likely out of recession. But we have to emphasize the word “likely,” since there are still many downside risks to economic recovery. According to the recession connoisseurs at the Massachusetts-based National Bureau of Economic Research, there have been 32 “business cycles” since 1857. The average contraction lasted 17 months from peak to trough, meaning that if the U.S. economy topped out in early 2008 then the recession should have ended this summer.

But that’s on average. The first contraction in the Great Depression lasted 43 months, while the longest on record lasted more than five years. And there are many examples of slow recoveries with many downturns along the way. After all, one reason so many stampeders headed to the Klondike in 1898 was that there had been recessions in 1890-91, 1893 and 1895-96.

So, even if we are officially out of recession, we likely have to get used to a prolonged period of uneven growth and pockets of bad news. Third quarter data from this year shows that there were almost twice as many mining and resource share issues as in the fourth quarter of 2008, but still only half as many as during the boom times in 2006 and 2007.

For example, North American Tungsten, owner of the Cantung mine and Mactung property on the NWT-Yukon border, successfully completed a $6-million private placement in August. That will help the company cope with turbulence and allow it to develop its Mactung project. But the price per share was well below 2007 levels, and the company still plans to suspend Cantung’s operations in October due to low commodity prices and high inventories.

We also have mixed news on our biggest economic engine: transfer payments. On the positive side, federal Minister of Finance Jim Flaherty announced his plan to protect the growth of transfer payments from any future federal belt-tightening to deal with Canada’s $56-billion deficit. On the other hand, a closer look at his numbers reveals annual growth until 2015 of only 4.7 per cent. Not bad, but considerably lower than before the crisis hit. And it depends on some optimistic financial forecasts.

Overall, it’s clear that the economy won’t return to normal anytime soon, if by “normal” you mean what we enjoyed in the years up to 2007. In fact, it is looking increasingly like this crisis will redefine “normal” to mean something like what we see with North American Tungsten and our transfer payments: some good news, some bad news, and a lot of uncertainty.