COVID-19 lockdowns choked off 11.6 per cent of Canadian real gross domestic product in April, the biggest one-month economic downturn on record – but preliminary evidence indicates that the economy took the first tentative recovery steps in May.
Statistics Canada said Tuesday that April’s GDP plunge was the largest since the agency began producing comparable data in 1961. That came on top of a 7.5-per-cent slump in March. The two months combined leaves the economy more than 18 per cent below its level in February, before the COVID-19 pandemic forced businesses to close and consumers to stay home.
But Statscan’s preliminary data suggest the economy grew by about 3 per cent in May, as COVID-19 containment measures began to ease and some businesses reopened. While the May upturn was modest compared with the depth of the fall, it nevertheless confirms economists’ views that the worst of the economic damage is behind us.
“The good news, such as it is, is that there are plenty of signs that April will mark the nadir,” Bank of Montreal chief economist Douglas Porter said in a research note. “We expect a bigger bounce in June as the economy reopened more fully.”
Still, the April GDP report provided a stark look at just how harsh the economic blow was from the COVID-19 lockdowns and where it hit hardest.
The accommodation and food services sector plunged 42 per cent in the month, on top of a 37-per-cent fall in March.
Manufacturing slumped 22.5 per cent, led by a 97.7-per-cent loss in motor vehicle output, as automakers in Canada and the United States were shut down for the month.
Construction and retail were both down 23 per cent in April. The arts, entertainment and recreation segment lost 26 per cent, after a 41-per-cent drop in March.
Statscan said no industry was spared, as all 20 of the major sectors of the economy posted losses for the month. However, a few were only modestly affected, including the agriculture, fishing and forestry segment (down 1 per cent); the financial sector (down 1 per cent); and utilities (down 1.8 per cent). Canada’s energy sector, its biggest source of exports, fell a relatively modest 5.6 per cent.
Economists said that even with the turnaround in May, the COVID-19 measures have left the economy in a historic hole.
“As of May, the economy was still operating almost 16 per cent below the level it was in February. To put that into perspective, during the worst of the [2008-09] financial crisis, the Canadian economy was not operating more than 5 per cent below its prior peak,” Canadian Imperial Bank of Commerce economist Royce Mendes said in a research note.
The April data and preliminary May GDP estimate suggest the economy is on track for a quarter-over-quarter contraction of about 10 per cent for the second quarter, which wrapped up Tuesday – consistent with economists’ forecasts over the past several weeks. Many of them have turned their attention to early signals of activity as the economy emerges from its slumber, to gauge just how robust a rebound we can expect in the near term.
Bank data on credit- and debit-card transactions suggest that, by mid-June, consumer spending had nearly returned to the pace before the lockdowns. Economists were also surprised by how much the labour market bounced back in May, although employment remains a far cry from its pre-COVID-19 levels.
Several coming indicators will help paint a more detailed picture of the recovery, starting with Thursday’s release of international trade data for May. Economists will be particularly interested in the June labour force survey, slated for release on July 10, as well as the Bank of Canada’s long-awaited update of its economic forecasts on July 15.
But most experts share the view that after an initial summer bounce with the easing of containment measures, the economy faces a long, slow recovery over the ensuing months, with COVID-19 worries, continuing restrictions and potential renewed outbreaks continuing to constrain activity.
“The path back for the economy continues to look long and winding, particularly with cases of the virus picking up again in a number of countries across the world, of course most notably in Canada’s largest trading partner, the U.S.,” Mr. Mendes said.
“Nothing like this has ever happened in our lifetimes; we are in uncharted territory, and the virus will determine the future course of the economy,” said Sherry Cooper, chief economist at Dominion Lending Centres. “It is crucial ... that we not assume the worst is over and let down our guard.”
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