Canada’s economy had its worst quarterly stretch since the start of the pandemic, contracting at an annualized rate of 1.1 per cent between April and June and possibly dropping further in July.
The decrease in real gross domestic product in the second quarter was the first quarterly contraction recorded since the sharp drop during the same stretch one year earlier during first-wave lockdowns.
And it was a sharp turnaround from the agency’s initial estimate last month that the economy expanded at an annual rate of 2.5 per cent for the April-to-June period, which Statistics Canada chalked up to additional data that wasn’t available last month.
Statistics Canada said driving the drop in the second quarter of this year were declines in home resale activity and exports. Increased business and government spending, as well as new home construction and renovations in the quarter weren’t enough to make up the shortfall.
2:53 Pandemic blamed for Canada’s biggest GDP drop
Pandemic blamed for Canada’s biggest GDP drop – Mar 2, 2021
Household spending also stayed flat in the quarter, even as restrictions rolled back in much of the country and consumers had more places to spend.
What appears to have happened, though, is that consumer spending in the quarter appeared to fuel price increases amid widespread supply-chain issues, rather than fuel growth.
Even as new figures show a contraction in activity just ahead of the election call, Liberal Leader Justin Trudeau says the domestic economy is bouncing back “extremely strongly” from COVID-19.
Speaking in the Ottawa suburb of Kanata, Trudeau says there are pockets of the economy that remain weak, pointing to arts and culture as an example.
He also argues that Conservative plans for child care, among other proposals, would hurt the pace of the economic recovery.
The Bank of Canada has decided to let inflation run above its two-per-cent target until the economy recovers, but now faces a more complicated policy-making landscape, said BMO chief economist Douglas Porter.
He said tightening monetary policy 00 usually done to cool price pressures _ would slow growth, but adding stimulus could simply fuel inflation.
“This is where policy-making gets very complicated, and the decisions are tough,” Porter said.
“Sometimes you have the best of all worlds when you’ve got strong growth and low inflation, and sometimes you have the worst of all worlds where you have high inflation and low or no growth _ and that’s the situation that we’re temporarily in right now.”
The second quarter ended with the economy growing by 0.7 per cent in June after two months of declines, placing total economic activity 1.5 per cent below pre-pandemic levels recorded in February 2020.
The agency said its initial estimate for July shows a contraction of 0.4 per cent for the month.
4:45 What to expect in the upcoming federal election
What to expect in the upcoming federal election – Aug 15, 2021
Statistics Canada said the main decreases in July were in manufacturing, construction and retail trade, while accommodation and food services had strong monthly gains as public health restrictions eased.
Total economic activity in July was about two per cent below pre-pandemic levels recorded in February 2020.
The figures suggest the Canadian economy wasn’t on as strong a footing as many believed at the start of the third quarter of the year, said CIBC senior economist Royce Mendes.
“And with the fourth wave now seemingly here, the economy faces another storm to navigate through,” he wrote in a note.
There were some silver linings in the figures, said TD senior economist Sri Thanabalasingam, pointing to consumer reorienting their spending from goods to services, which weighed on retail trade output, and a cooling in the super-hot housing market towards more normal levels.
Those weaknesses, he said, should become less of a drag as activity in each sector normalizes.
What could pose a larger drag for the rest of the year is the spread of the Delta variant of COVID-19, said Thanabalasingam.
Provinces are looking to avoid lockdowns by proposing vaccine passports to access non-essential businesses, companies implementing regular testing, and a federal vaccine mandates for workers and travellers.
The rise in case counts could affect consumer confidence that could prove to be a material shock, Thanabalasingam said.
“That could weaken the pace of the recovery,” he said.
“I don’t think it blows the economic recovery off course, given all the measures that we have seen being implemented, but it could slow the recovery.”
Porter said he’s cutting his forecast for growth for the year to five per cent from six per cent, but added that “five per cent might even look a tad optimistic at this point, to be honest.”
The Canadian Institute for Health Information says health-care spending in Canada is projected to reach a new high in 2024.
The annual report released Thursday says total health spending is expected to hit $372 billion, or $9,054 per Canadian.
CIHI’s national analysis predicts expenditures will rise by 5.7 per cent in 2024, compared to 4.5 per cent in 2023 and 1.7 per cent in 2022.
This year’s health spending is estimated to represent 12.4 per cent of Canada’s gross domestic product. Excluding two years of the pandemic, it would be the highest ratio in the country’s history.
While it’s not unusual for health expenditures to outpace economic growth, the report says this could be the case for the next several years due to Canada’s growing population and its aging demographic.
Canada’s per capita spending on health care in 2022 was among the highest in the world, but still less than countries such as the United States and Sweden.
The report notes that the Canadian dental and pharmacare plans could push health-care spending even further as more people who previously couldn’t afford these services start using them.
This report by The Canadian Press was first published Nov. 7, 2024.
Canadian Press health coverage receives support through a partnership with the Canadian Medical Association. CP is solely responsible for this content.
As Canadians wake up to news that Donald Trump will return to the White House, the president-elect’s protectionist stance is casting a spotlight on what effect his second term will have on Canada-U.S. economic ties.
Some Canadian business leaders have expressed worry over Trump’s promise to introduce a universal 10 per cent tariff on all American imports.
A Canadian Chamber of Commerce report released last month suggested those tariffs would shrink the Canadian economy, resulting in around $30 billion per year in economic costs.
More than 77 per cent of Canadian exports go to the U.S.
Canada’s manufacturing sector faces the biggest risk should Trump push forward on imposing broad tariffs, said Canadian Manufacturers and Exporters president and CEO Dennis Darby. He said the sector is the “most trade-exposed” within Canada.
“It’s in the U.S.’s best interest, it’s in our best interest, but most importantly for consumers across North America, that we’re able to trade goods, materials, ingredients, as we have under the trade agreements,” Darby said in an interview.
“It’s a more complex or complicated outcome than it would have been with the Democrats, but we’ve had to deal with this before and we’re going to do our best to deal with it again.”
American economists have also warned Trump’s plan could cause inflation and possibly a recession, which could have ripple effects in Canada.
It’s consumers who will ultimately feel the burden of any inflationary effect caused by broad tariffs, said Darby.
“A tariff tends to raise costs, and it ultimately raises prices, so that’s something that we have to be prepared for,” he said.
“It could tilt production mandates. A tariff makes goods more expensive, but on the same token, it also will make inputs for the U.S. more expensive.”
A report last month by TD economist Marc Ercolao said research shows a full-scale implementation of Trump’s tariff plan could lead to a near-five per cent reduction in Canadian export volumes to the U.S. by early-2027, relative to current baseline forecasts.
Retaliation by Canada would also increase costs for domestic producers, and push import volumes lower in the process.
“Slowing import activity mitigates some of the negative net trade impact on total GDP enough to avoid a technical recession, but still produces a period of extended stagnation through 2025 and 2026,” Ercolao said.
Since the Canada-United States-Mexico Agreement came into effect in 2020, trade between Canada and the U.S. has surged by 46 per cent, according to the Toronto Region Board of Trade.
With that deal is up for review in 2026, Canadian Chamber of Commerce president and CEO Candace Laing said the Canadian government “must collaborate effectively with the Trump administration to preserve and strengthen our bilateral economic partnership.”
“With an impressive $3.6 billion in daily trade, Canada and the United States are each other’s closest international partners. The secure and efficient flow of goods and people across our border … remains essential for the economies of both countries,” she said in a statement.
“By resisting tariffs and trade barriers that will only raise prices and hurt consumers in both countries, Canada and the United States can strengthen resilient cross-border supply chains that enhance our shared economic security.”
This report by The Canadian Press was first published Nov. 6, 2024.
OTTAWA – Statistics Canada says the country’s merchandise trade deficit narrowed to $1.3 billion in September as imports fell more than exports.
The result compared with a revised deficit of $1.5 billion for August. The initial estimate for August released last month had shown a deficit of $1.1 billion.
Statistics Canada says the results for September came as total exports edged down 0.1 per cent to $63.9 billion.
Exports of metal and non-metallic mineral products fell 5.4 per cent as exports of unwrought gold, silver, and platinum group metals, and their alloys, decreased 15.4 per cent. Exports of energy products dropped 2.6 per cent as lower prices weighed on crude oil exports.
Meanwhile, imports for September fell 0.4 per cent to $65.1 billion as imports of metal and non-metallic mineral products dropped 12.7 per cent.
In volume terms, total exports rose 1.4 per cent in September while total imports were essentially unchanged in September.
This report by The Canadian Press was first published Nov. 5, 2024.
