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.
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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.”
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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.
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“That said, there are still significant risks on the horizon from a resurgence of the virus.”
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OTTAWA – Canada’s unemployment rate held steady at 6.5 per cent last month as hiring remained weak across the economy.
Statistics Canada’s labour force survey on Friday said employment rose by a modest 15,000 jobs in October.
Business, building and support services saw the largest gain in employment.
Meanwhile, finance, insurance, real estate, rental and leasing experienced the largest decline.
Many economists see weakness in the job market continuing in the short term, before the Bank of Canada’s interest rate cuts spark a rebound in economic growth next year.
Despite ongoing softness in the labour market, however, strong wage growth has raged on in Canada. Average hourly wages in October grew 4.9 per cent from a year ago, reaching $35.76.
Friday’s report also shed some light on the financial health of households.
According to the agency, 28.8 per cent of Canadians aged 15 or older were living in a household that had difficulty meeting financial needs – like food and housing – in the previous four weeks.
That was down from 33.1 per cent in October 2023 and 35.5 per cent in October 2022, but still above the 20.4 per cent figure recorded in October 2020.
People living in a rented home were more likely to report difficulty meeting financial needs, with nearly four in 10 reporting that was the case.
That compares with just under a quarter of those living in an owned home by a household member.
Immigrants were also more likely to report facing financial strain last month, with about four out of 10 immigrants who landed in the last year doing so.
That compares with about three in 10 more established immigrants and one in four of people born in Canada.
This report by The Canadian Press was first published Nov. 8, 2024.
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.
