The Canadian economy took a hit as a third wave of COVID-19 spread through the country, though the decline was less than feared, new figures show.
Real gross domestic product fell 0.3 per cent in April, the first decline in 12 months, Statistics Canada said Wednesday. A previous estimate called for a 0.8-per-cent contraction. Statscan forecast another 0.3-per-cent drop for May, given restrictions that month.
Despite that, activity likely roared back in June as provincial reopenings took hold, supported by falling COVID-19 infection rates and a vaccination push that ranks among the world’s best. Bay Street analysts are pencilling in a modest GDP expansion in the second quarter, followed by a burst of activity this summer as Canadians gain access to more of the hard-hit service sectors.
“April and May were likely temporary setbacks to the recovery. Better days are already here,” said Toronto-Dominion Bank senior economist Sri Thanabalasingam in a note to investors. “Although the Delta variant could create some challenges, Canada’s inoculation pace could keep such risks at bay.”
“The clouds are parting, the worst of the pandemic could finally be behind us,” he added.
The drags on growth in April were hardly surprising. Output in retail trade tumbled 5.5 per cent as non-essential retailers suffered from the latest bout of restrictions. The accommodation and food-services industry fell 4.6 per cent, owing to restaurant weakness.
Manufacturing was another sore spot. The industry dropped 1 per cent in April, partly because of the global semiconductor-chip shortage that’s curbing production in the auto industry.
Real estate, rental and leasing fell 0.7 per cent in April. Activity dropped 10.6 per cent at the offices of real estate agents as home-buying activity slowed, albeit from record highs.
“The torrid activity in that sector seems to have taken at least a breather during the third wave,” Royce Mendes, senior economist at CIBC Capital Markets, wrote to clients. “It remains to be seen whether that was just in response to distancing measures or whether the resale housing market is generally cooling off.”
The GDP slowdown was mitigated by strength in a handful of areas. For one, output expanded by 2.4 per cent in construction, buoyed by the building of residential homes. Mining, oil and gas extraction grew 1.4 per cent, coinciding with a boost in commodity prices.
As of April, GDP is down 1.2 per cent from prepandemic levels. Half of the 20 industrial sectors remain in negative territory. But the laggards – such as arts and recreation, along with hospitality – are likely to be focal points of consumer spending in the coming months.
“With the Canadian economy less bruised by the third wave than expected, we’re more confident that the level of economic activity will reach its pre-COVID-19 peak some time in the third quarter,” Mr. Mendes wrote.
“That said, even after attaining that milestone, there will still be slack in the economy to soak up. As a result, the Bank of Canada won’t be in any rush to hike rates.”
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