OTTAWA - There is no quick test to determine when a sick economy crosses the line from slump to deep recession to even depression, but Canadians will know if it happens.
Finance Minister Jim Flaherty's fiscal statement last week made it sound like Canada had caught a case of the sniffles projecting 0.3 per cent growth next year, although his caution that no one could say for certain what happens next left all possibilities open.
Part of the reason, says TD Bank chief economist Don Drummond, is that with the exception of the rout in equity markets that began in late September, and the fall in commodity prices, most of Canada's economic indicators have held up relatively well.
So far. And Canadians can definitely hear the rumblings of the storm clouds coming. Economic statistics this week, especially Monday's third-quarter GDP report and Friday's employment statistics, are expected to reflect the deteriorating economy.
The North American automakers are on the verge of bankruptcy. Plants are closing, including Magna International's recent announcement of 850 layoffs in the Toronto area. Consumer confidence is at a quarter-century low, according to the Conference Board. Everyone, it seems, is asking for a bailout.
"People are definitely afraid and the real bad numbers are yet to come out," Drummond said.
"The U.S. is free falling like a stone. We haven't seen it spread to Canada fulsomely yet despite the whacking of the forestry and the automobile industry, but I still think that's got to drag us down."
Meanwhile, uncertainty over the future of the Conservative minority government -- with talk of Liberal-NDP coalition backed by the separatist Bloc Quebecois -- could unnerve investors and lead to a run on the dollar and stock market, making things worse for the economy.
On Sunday, the Conservative government advanced the federal budget date to Jan. 27 and backed down on a plan to ban public service strikes in a move to save itself from defeat.
Many analysts see the string of not-awful real numbers coming to a quick end as early as this week with the release of the jobs report and new figures for home and auto sales.
"The important figure is the unemployment rate," says Mike McCracken of Infometrica economic research firm. "That is the first test of what is happening in November (after the stock market crash)".
Economists see Canada shedding between 20,000 and 40,000 jobs in November, and they see those numbers as the beginning of a slide that could last two years.
There is clear evidence that Canada is about to go through a milder version of what has been happening in the United States since January, where one million jobs vanished in 10 months. Or perhaps not a mild version at all.
How bad could it get? Very bad.
McCracken says his pessimistic scenario -- which is becoming more realistic by the day -- is for Canada to lose 600,000 jobs over the next two years. That's opposed to the about 300,000 jobs growth annually the country had been enjoying.
It's not the 1930s, and arguably it's not even as bad as the early 1990s, when the jobless rate topped 10 per cent. But it's also not the mild "technical recession" of two consecutive negative quarters alluded to by Flaherty in his mid-fiscal year report last week.
"I don't think I would call it a depression, but I think a prolonged recession is very well a possibility as long as the credit markets are not operating," says Douglas Porter of BMO Capital Markets.
Economists have been scouring the horizon for a bottom to the financial and economic pratfall for months and been disappointed every time they believed they spotted a silver lining.
Credit markets had been easing, but now appear to be retracing. The stock market -- the usual canary in the mine because they usually predate any real economic move by months -- have followed each rebound with a sharper drop.
And there is still no bottom to the U.S. housing market in sight.
"That is the key because when housing starts going up, first it will add impetus to growth, and second it will be a signal to financial institutions to mark down their mortgages and we'll finally know what's in their books," Drummond said.
But until that happens, the bottom just keeps looking further out and deeper, sending economists scurrying to their computers to revise their growth forecasts .None have revised upwards.
The TD Bank, for instance, is beginning to use what a few weeks ago had been its pessimistic scenario of a 1.1 per cent real gross domestic product contraction in 2009 in their literature. Infometrica has the economy shrinking by as much as 1.5 per cent in a worst case scenario.
Many others, including the Bank of Montreal, Bank of Nova Scotia and Merrill Lynch are also in negative territory for next year.
Even the Finance Department had to adjust its figures. Drummond said three weeks ago when he visited with officials in Ottawa, the government's estimates for growth were twice what they wound up being in last Thursday's update.
Many economists were critical of the finance minister for not showing more alarm about the risks to the economy -- and introducing a stimulus package -- but they agreed with Flaherty that there are more unknowns than knowns about what lies ahead.
It will get far worse, says McCracken, if credit squeezes further impact consumers and if corporations start shelving major projects, as has been happening in the oilpatch.
Or perhaps, says Drummond, the trillions of dollars being poured into the global economy by governments in the U.S., Europe, Japan and China will stop the slide.
"At some point that will gain traction," he says. "Even just believing it will gain traction could cause equity markets to go up".
