Canada’s economy saw record 11.6% drop in April, but signs of rebound emerging – The Globe and Mail

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 steps of recovery 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 – a downward revision from the previously reported 7.2 per cent. The two months combined left 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 said its preliminary data suggest that 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 decidedly modest compared with the depth of the fall, it nevertheless confirms economists’ view 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 lockdowns aimed at containing the novel coronavirus, 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. Statscan said that the sector was operating about 64-per-cent below its pre-COVID-19 levels in April.

Manufacturing slumped 22.5 per cent, led by a 97.7-per-cent loss in motor-vehicle output, as automakers in both 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 from the impact of the lockdowns, 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). The country’s energy sector, its biggest source of exports, fell a relatively modest 5.6 per cent.

Economists noted that even with the turnaround in May, the pandemic 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 [2008-2009] 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 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.,” he said.

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