The Canadian economy suffered its biggest quarterly slump on record in the second quarter as pandemic-related shutdowns slowed the country to a crawl, but a dramatic rebound in June and July indicates that a recovery is well under way.
Statistics Canada reported Friday that real gross domestic product (GDP) plunged 11.5 per cent in the three months ended June 30 – a period that encompassed the worst of the lockdowns in Canada and elsewhere aimed at containing the COVID-19 pandemic. It was the deepest single-quarter fall since the national statistical agency began publishing quarterly data in 1961.
Expressed on an annualized basis – a common way of quantifying quarterly GDP changes in normal times – the decline was 38.7 per cent. That was more severe than 31.7 per cent reported in the United States, reflecting Canada’s earlier and generally stricter lockdowns.
But while the depth of Canada’s second-quarter economic loss is sobering, it was actually toward the low end of expectations among economists. The return of activity proved stronger than initially anticipated as the pandemic containment restrictions lifted toward the end of the quarter.
Statscan said that real GDP surged 6.5 per cent in June from May – itself a one-month record, and considerably higher than the agency’s preliminary estimate of 5 per cent published several weeks ago. This was on top of an upwardly revised 4.8-per-cent rebound in May, when the lockdowns first began to ease, up from the previously reported 4.5 per cent.
Statscan also issued a preliminary estimate for July of another 3-per-cent rise, as the recovery continued. In all, real GDP is up about 15 per cent from its low point in April – although the July estimate leaves it still about 6 per cent below its precrisis level in February.
While the data illustrate that the economy has re-emerged quickly from the COVID-19 lockdowns, activity in some sectors continues to be weighed down by restrictions, profound uncertainties and the effects of a deeply shaken global environment. Air transportation remained all but non-existent in June, down 94 per cent from February; other tourism services are still deeply hampered by restrictions and border closings. Restaurants and bars, despite a rebound, were still operating at 40-per-cent below their pre-COVID-19 levels in June. Output of petroleum, metal and forestry products remained far below normal, amid still-low prices and tepid global demand.
So while economists hailed the end of the lockdown-inflicted slump, they cautioned that further recovery in the months ahead will be more halting and uneven.
“At least it’s behind us now,” Toronto-Dominion Bank senior economist Brian DePratto said in a research note. “As significant as the damage was, it was largely contained to March and April.”
“June’s solid [rise] and positive developments since then ... point to a strong, if partial, recovery in activity over the summer months,” he said. “Ultimately, however, partial means partial. Many sectors are going to continue struggling in the absence of a vaccine.”
Nevertheless, economists said that at least the initial stage of the recovery, as it continues in the third quarter, suggests the economy may be on a somewhat better track for the rest of the year than they had anticipated.
“The upgrade to June’s big rise ... and the solid July gain point to a mammoth [third-quarter] increase,” Bank of Montreal chief economist Douglas Porter said. The data were strong enough to convince Mr. Porter to upgrade his forecast GDP decline for 2020 as a whole, to a loss of 5.5 per cent from his previous 6 per cent.
“It’s not a big change, but finally seeing an upward revision is a big deal,” he said.
Canada’s second-quarter GDP decline was roughly in line with those experienced by the euro area countries, and was in the middle of the pack among the Group of Seven. Canadian losses were more severe than in the U.S. as well as Japan, which resisted widespread lockdown orders, and Germany, which acted swiftly on COVID-19 containment and began reopening sooner than many other countries. But Canada fared much better than Britain, where GDP crumbled by more than 20 per cent quarter-to-quarter, as authorities were initially slow to clamp down on containment, but ultimately had to keep stricter measures in place for more of the quarter.
Canadian Imperial Bank of Commerce senior economist Royce Mendes said that Canada’s relatively aggressive pandemic containment response, compared with its U.S. neighbour, may have paved the way to a quicker recovery.
“Those actions appear to be paying off in spades in terms of the outlook. With new virus cases still at low levels, the economy is set to materially outperform the U.S. in the third quarter,” Mr. Mendes said in a research report.
“That said, there are still significant risks on the horizon from a resurgence of the virus.”
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David Parkinson