There are a couple of ways of looking at the notable strength of the Canadian economy as we go through wave after wave of COVID-19-induced restrictions and shutdowns.
One – the most commonly voiced – is that the solid growth through the challenging first quarter of 2021 is proof that businesses and consumers have become adept at managing their way around closings and stay-at-home orders. We have adapted through technology and new delivery methods and government support programs to largely overcome the impediments thrown in our path. We have learned to thrive in the pandemic, as much as we hate it.
But I’d like to consider another, less self-congratulatory explanation. Perhaps the strong economic performance is evidence of just how ineffective our second- and now third-wave pandemic restrictions have been at keeping people home and reducing the spread of the virus. Maybe the economy is thriving because we’ve done a mediocre job of slowing down and staying in our bubbles.
Last Friday’s gross domestic product report from Statistics Canada showed continued strong growth in both February (up 0.4 per cent month-over-month) and March (a preliminary estimate of 0.9 per cent), adding to the 0.7-per-cent gains posted in January. The second-wave shutdowns at the start of the year barely caused the economy to miss a beat.
With the March estimate, GDP looks to have ended the first quarter only about 1 per cent below its prepandemic level – this despite still-considerable closings and restrictions affecting a wide swath of consumer- and service-oriented segments of the economy.
Are other parts of the economy, then, doing all the heavy lifting? Hardly.
The February GDP report shows that all of the month’s growth came from services-producing industries; goods-producing sectors actually contracted slightly. Retail trade surged 4.5 per cent, accounting for more than half of February’s GDP growth all by itself. Statscan’s preliminary estimate for March put retail sales up another 2.3 per cent in that month.
As of February, retail sales volumes have surpassed their prepandemic levels – amid continuing restrictions at brick-and-mortar stores.
Yes, some economists suggest that we may be in for a slowdown in growth and some of the key indicators driving it – most notably, retail sales and employment – as we weather the current third-wave restrictions. But others look at the modest impact of the second wave and see little reason to fret; pandemic restrictions don’t seem to slow us down much anymore.
Maybe that’s because the restrictions don’t really work any more.
Mobility evidence collected by Google, using mapping data from mobile phones, indicates that trips to and from stores and restaurants are at much higher levels than they were in the first wave of the pandemic. (They are about 30 per cent below prepandemic levels currently, versus 60 per cent last spring).
In last spring’s first wave, the deep declines in GDP and employment were devastating – but they were also very much by design. Our governments ordered businesses closed and imposed stay-at-home orders very much intending on dramatically slowing down economic activity – which, they hoped, would also slow the transmission of the deadly virus.
Unquestionably, consumers and businesses have adapted admirably since then, finding ways to continue transacting without the same physical exposure to each other that they had in prepandemic days. But curbside pick-up and take-out food orders still mean more trips out of the house. The reality is, we’re not sticking to home nearly to the degree we were last spring.
Arguably, this, too, is by design. Our governments have generally sett’ into a sort of muddle-through strategy that has hindered but not stopped our commercial movements, and provided retailers with avenues to keep their heads above water. Meanwhile, Ottawa has furnished consumers with massive financial supports to replace lost incomes. It’s no surprise that consumer spending has been a crucial driver of the recovery to date.
This approach has unquestionably reduced the serious threat of economic scarring – the lasting damage from a recession in the form of businesses permanently closed, productive capacity permanently lost, and workers permanently dropping out of the labour force. It has also provided the recovery with a source of demand that has plenty of fuel still in the tank. Canadian households have accumulated more than $100-billion of cash in bank accounts during the pandemic, thanks to the federal government’s income supports and continuing COVID-19 restrictions that have taken away some major spending options. (Anyone take a tropical vacation this winter?)
Yet the mobility evidence is much less welcomed by epidemiologists. A recent study in the Canadian Medical Association Journal found the increased mobility “strongly and consistently predicts” rising spread of COVID-19.
We may have traded off sustaining retail life in exchange for prolonging the restrictions and closings. Setting aside the public health implications, even from an economic perspective, it’s unclear whether this is our best choice.
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