The Canadian economy is managing to plow ahead despite the second wave of COVID-19.
Real gross domestic product rose 0.7 per cent in November, almost twice as much as expected, Statistics Canada said Friday. And in a preliminary estimate, the agency said December was poised for a 0.3-per-cent gain. Many economists had feared a pullback in economic activity last month, given that many regions tightened pandemic restrictions to curb new infections.
If that December estimate pans out, real GDP will have declined 5.1 per cent in 2020 – the worst hit in generations. And while 2021 holds the promise of blistering growth, the economy will be tested in the coming weeks by elevated caseloads of COVID-19, new variants of the virus and sluggish vaccination rollouts.
“Outside of sectors most directly affected by the virus, the economy seemed to still be faring well,” said Royce Mendes, senior economist at CIBC Capital Markets, in a client note. “That said, there are obvious concerns about how long GDP can outrun the virus.”
November was marked by broad-based strength. Fourteen of 20 industrial sectors saw their output increase. Real GDP jumped 1.2 per cent in goods-producing industries, while the services sector climbed 0.5 per cent.
The largest contributor to November’s growth was mining, oil and gas extraction, which notched a 3.9-per-cent gain. Statscan pointed to a handful of supporting factors, including higher oil production in Alberta as some facilities restarted operations.
“Given the ongoing rebound in energy prices, as well as the surprising strength in many other commodity prices, the natural resource group may continue to be a big contributor to the near-term recovery,” Bank of Montreal chief economist Doug Porter said in a report.
Manufacturing was another standout, rising 1.7 per cent, largely owing to higher inventories. Finance and insurance climbed 1.3 per cent – lifted for various reasons, including buoyant stock markets and massive demand for mortgages.
“The broad nature of the advance suggests industries have, to some degree, adapted well to the pandemic,” said Sri Thanabalasingam, senior economist at Toronto-Dominion Bank, in a client note.
Despite the economy’s resilience, the near-term outlook is undoubtedly weak. The labour market shed about 63,000 positions last month, and another setback is forecast for January. And while the number of new infections is falling in many regions, progress isn’t sufficient to significantly ease restrictions, effectively keeping the doors shut in many industries.
The Bank of Canada said last week that the second wave of the pandemic would hamper the start of 2021, with the central bank projecting GDP would fall at a 2.5-per-cent annualized rate in the first quarter. Still, the economy is expected to grow 4 per cent this year as a whole and almost 5 per cent in 2022.
“The earlier expected arrival of vaccines is a very positive development, and we do expect to see stronger growth through the second half of this year and into the first half of next year,” bank governor Tiff Macklem said in a news conference.
Beyond Canada, the outlook for this year is similarly positive. The International Monetary Fund this week upgraded its global growth forecast for 2021 to 5.5 per cent from 5.2 per cent, thanks to the availability of vaccines. But it also warned that uneven distribution – with those in advanced economies getting inoculated first – posed a threat to the recovery.
At present, Canada is grappling with delivery issues, too. The country expects to get 56-per-cent fewer doses of the Pfizer-BioNTech vaccine from Jan. 18 to Feb. 21. And on Friday, it was announced that shipments of the Moderna vaccine would be curtailed next week. As a result, Canada’s vaccination program has slipped down the list of international rankings.
“The recovery could quicken given the arrival of vaccines. But the timing remains uncertain,” Mr. Thanabalasingam said. “Recent stumbles in the vaccine-rollout process, and the presence of more contagious strains of COVID-19, cloud the near-term outlook.”
With files from Mark Rendell, Marieke Walsh and James Keller
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