Canada’s quarterly gross domestic product report has confirmed that the economy roared back to life over the summer months, but economists are now more concerned that the resurgence of the COVID-19 virus could stall a recovery that’s still far from complete.
Statistics Canada reported Tuesday that real GDP surged 8.9 per cent quarter-over-quarter (or 40.5 per cent in annualized terms) in the period ended Sept. 30, reversing much of the 11.3-per-cent slump in the previous quarter, as the economy reopened following the widespread lockdowns of the spring. But the economy ended September still running about 5 per cent below pre-pandemic levels, as the global health crisis kept some segments of the economy closed.
Statscan said GDP rose a strong 0.8 per cent in September, about in line with its preliminary estimate of a month ago and the fifth consecutive month-to-month increase. However, it estimated that growth slowed to about 0.2 per cent in October – by far the slowest since the post-lockdown recovery began – as the gains from reopenings faded and the second wave of the pandemic began to weigh on business and consumer activity.
With the growing pace of COVID-19 infections throughout November forcing many regions to tighten containment measures and reimpose closures of high-contact businesses, economists say the October slowdown marks the start of a much slower final quarter, with little if any growth.
“The next several months are not going to be pretty,” Toronto-Dominion Bank senior economist Sri Thanabalasingam said in a research report.
“There is a good chance that the economic recovery doesn’t just stall but shifts into reverse this winter.”
Third-quarter growth was actually a bit smaller than the roughly 10 per cent economists had anticipated, both in the private sector and at the Bank of Canada. This was due mainly to a major set of revisions of Statscan’s GDP data going back to the start of 2016, which resulted in a lowering of growth for both July (to 2.5 per cent from the previously reported 3.1 per cent) and August (to 0.9 per cent from 1.2 per cent). But the revisions also reduced the estimated GDP declines in the first two quarters.
Economists said the economy remains on track for a 5.5-per-cent contraction for 2020 as a whole – the worst year since the Great Depression of the 1930s.
The third-quarter data spoke to the uneven nature of the recovery, as some sectors roared back while others remained handcuffed by health restrictions.
Household consumption of goods rose 17 per cent, including a 38-per-cent surge in durable-goods purchases, fuelled by the rapid rebound in employment and by the federal government’s substantial emergency income-support programs. The gains lifted goods consumption to well above pre-crisis levels. Housing investment jumped 30 per cent, putting it 10 per cent higher than at the end of 2019.
But consumption of services, which remains seriously impeded by virus-containment measures, saw a much more modest 10-per-cent gain and remained more than 12 per cent below end-of-2019 levels. And non-residential business investment, despite bouncing back 7 per cent, was still down 11 per cent from the end of last year.
Economists have mixed views on how severely the second-wave containment measures will impede growth in the fourth quarter and into the new year, with some predicting small gains but others worrying the economy may dip slightly into negative territory again – though nowhere near the deep slump of last spring’s lockdowns. The Bank of Canada’s latest economic outlook, issued at the end of October, projected growth of just 0.2 per cent in the fourth quarter.
Still, economists noted that continuing government supports will help households weather the slowdowns and will provide stimulus to expedite a recovery next year, when eagerly awaited vaccines look likely to bring the pandemic under control. On Monday, the federal government presented an economic update that pledged to continue financial supports for workers and businesses affected by the pandemic and unveiled a commitment to spend as much as $100-billion in additional stimulus over three years to aid the recovery once the pandemic subsides.
Economists also noted that the high rate of savings among Canadian households during the pandemic – almost 15 per cent in the third quarter, up from 2 per cent at the end of 2019 – provides considerable fuel to keep domestic consumption rolling through the second-wave slowdown and to kick-start the economy once pandemic conditions improve.
In new global economic forecasts Tuesday, the Organisation for Economic Co-operation and Development estimated that Canada’s economy will have shrunk 5.4 per cent in 2020 but predicted it will grow 3.5 per cent next year. Canada’s private-sector economists are more optimistic about 2021, with projections ranging from about 4 per cent to 5.5 per cent.
“Some of the growth rates seen in [the third quarter] could be a taste of what could lie ahead later in 2021,” Bank of Montreal chief economist Doug Porter said.
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