Statistics Canada reported that the country’s economy rebounded more quickly than previously thought as COVID-19 shutdowns eased over the spring, but economists caution that the recovery beyond this initial restart will likely be more difficult.
The statistics agency said Friday that real gross domestic product – the main gauge for the pace of the overall economy – jumped 4.5 per cent in May from April, considerably more than Statscan’s previous preliminary estimate of 3 per cent. It marks a reversal from the deep two-month slide in economic activity caused by lockdowns aimed at slowing the deadly virus, which had wiped out 18 per cent of GDP over March and April.
The agency’s early estimate for June indicated that GDP likely rose another 5 per cent month-over-month as containment measures continued to relax and more businesses reopened. Nevertheless, that still indicates an economy running far below its prepandemic levels at the end of the second quarter. The June estimate leaves GDP for the quarter as a whole down about 12 per cent from the first quarter – by far the deepest decline on record. The preliminary estimates are subject to revision when Statscan publishes its official June and second-quarter numbers on Aug. 28.
“Even with May and June set to be the strongest two months of growth recorded under the current [GDP] definition, the economy was still about 10 per cent shy of its prepandemic level of activity in early summer. The June forecast and early July indicators augur for a decent pop-back of activity this quarter, but once the initial effect of reopenings fades, we’re likely to enter a more gradual phase of recovery,” Toronto-Dominion Bank senior economist Brian DePratto said in a research note.
“That prolonged recovery will be beset by risks – although Canada has so far done a decent job bending the infection curve, the risk of a second wave remains,” he cautioned.
May’s gains were led by big rebounds in businesses that were most dramatically slowed by the COVID-19 lockdowns but were allowed to return to work during the month. Accommodation and food services surged 24.2 per cent, construction jumped 17.6 per cent and retail trade gained 16.6 per cent.
But left out of the bounce-back was the arts, entertainment and recreation sector, which slipped another 2.9 per cent following deep losses the previous two months, as live shows, sporting events and movie theatres remained crippled by physical-distancing imperatives. Conventional oil-extraction sank to its lowest level since late 2016 amid depressed crude prices. And while air transportation crept up 1.9 per cent, Statscan noted that it remained almost entirely shut by the pandemic, down 96 per cent from pre-coronavirus levels.
Statscan didn’t provide a full breakdown by sector for its preliminary June estimate, but it did say output in the month accelerated “across several industrial sectors, including manufacturing, retail and wholesale trade, construction, transportation, accommodation and food services, and the public sector.”
Canada’s preliminary second-quarter numbers show a deeper decline than the advance estimate for the U.S. economy released on Thursday, which put the decline for the quarter at about 9.5 per cent. Canadian Imperial Bank of Commerce senior economist Royce Mendes noted that Canada enacted its virus-containment lockdowns earlier than its American neighbour and has eased restrictions more slowly.
“The good news is that the more cautious reopening has kept virus cases under control north of the border, suggesting Canada’s economy is in a position to outperform that of the U.S. in the third quarter,” Mr. Mendes said in a research report.
Still, economists warn that with the pandemic far from over and with the shutdowns having inflicted significant damage to employment and businesses, a full recovery from the damage done in March and April remains a long way off – and the path ahead is an uncertain one.
“We expect the pace of recovery to slow over the summer, and for GDP to remain below its pre-virus level until late 2021,” said Stephen Brown, senior Canada economist for Capital Economics, in a research note.
TD’s Mr. DePratto said the recovery faces significant hurdles in the coming months as it tries to build on the initial bounce-back – not only from the ongoing risks associated with the pandemic, but from the easing and eventual removal of massive government supports that have propped up incomes during the crisis.
“It is also important to remember that even if we navigate these risks unscathed, the economic recovery is unlikely to be even,” he said. “Many sectors, including travel, international tourism and recreation, will continue to feel the pain of pandemic response measures for some time to come. ‘Normal’ is still a long way away.”
Your time is valuable. Have the Top Business Headlines newsletter conveniently delivered to your inbox in the morning or evening. Sign up today.