A pedestrian passes a bus shelter on Toronto’s Queen Street West on April 28, 2020.
Fred Lum/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.
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“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.
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“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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TORONTO – Canada’s main stock index was higher in late-morning trading, helped by strength in energy stocks, while U.S. stock markets also moved up.
The S&P/TSX composite index was up 34.91 points at 23,736.98.
In New York, the Dow Jones industrial average was up 178.05 points at 41,800.13. The S&P 500 index was up 28.38 points at 5,661.47, while the Nasdaq composite was up 133.17 points at 17,725.30.
The Canadian dollar traded for 73.56 cents US compared with 73.57 cents US on Monday.
The November crude oil contract was up 68 cents at US$69.70 per barrel and the October natural gas contract was up three cents at US$2.40 per mmBTU.
The December gold contract was down US$7.80 at US$2,601.10 an ounce and the December copper contract was up a penny at US$4.28 a pound.
This report by The Canadian Press was first published Sept. 17, 2024.
OTTAWA – Canada’s inflation rate fell to two per cent last month, finally hitting the Bank of Canada’s target after a tumultuous battle with skyrocketing price growth.
The annual inflation rate fell from 2.5 per cent in July to reach the lowest level since February 2021.
Statistics Canada’s consumer price index report on Tuesday attributed the slowdown in part to lower gasoline prices.
Clothing and footwear prices also decreased on a month-over-month basis, marking the first decline in the month of August since 1971 as retailers offered larger discounts to entice shoppers amid slowing demand.
The Bank of Canada’s preferred core measures of inflation, which strip out volatility in prices, also edged down in August.
The marked slowdown in price growth last month was steeper than the 2.1 per cent annual increase forecasters were expecting ahead of Tuesday’s release and will likely spark speculation of a larger interest rate cut next month from the Bank of Canada.
“Inflation remains unthreatening and the Bank of Canada should now focus on trying to stimulate the economy and halting the upward climb in the unemployment rate,” wrote CIBC senior economist Andrew Grantham.
Benjamin Reitzes, managing director of Canadian rates and macro strategist at BMO, said Tuesday’s figures “tilt the scales” slightly in favour of more aggressive cuts, though he noted the Bank of Canada will have one more inflation reading before its October rate announcement.
“If we get another big downside surprise, calls for a 50 basis-point cut will only grow louder,” wrote Reitzes in a client note.
The central bank began rapidly hiking interest rates in March 2022 in response to runaway inflation, which peaked at a whopping 8.1 per cent that summer.
The central bank increased its key lending rate to five per cent and held it at that level until June 2024, when it delivered its first rate cut in four years.
A combination of recovered global supply chains and high interest rates have helped cool price growth in Canada and around the world.
Bank of Canada governor Tiff Macklem recently signalled that the central bank is ready to increase the size of its interest rate cuts, if inflation or the economy slow by more than expected.
Its key lending rate currently stands at 4.25 per cent.
CIBC is forecasting the central bank will cut its key rate by two percentage points between now and the middle of next year.
The U.S. Federal Reserve is also expected on Wednesday to deliver its first interest rate cut in four years.
This report by The Canadian Press was first published Sept. 17, 2024.
FREDERICTON – New Brunswick‘s finance minister says the province recorded a surplus of $500.8 million for the fiscal year that ended in March.
Ernie Steeves says the amount — more than 10 times higher than the province’s original $40.3-million budget projection for the 2023-24 fiscal year — was largely the result of a strong economy and population growth.
The report of a big surplus comes as the province prepares for an election campaign, which will officially start on Thursday and end with a vote on Oct. 21.
Steeves says growth of the surplus was fed by revenue from the Harmonized Sales Tax and federal money, especially for health-care funding.
Progressive Conservative Premier Blaine Higgs has promised to reduce the HST by two percentage points to 13 per cent if the party is elected to govern next month.
Meanwhile, the province’s net debt, according to the audited consolidated financial statements, has dropped from $12.3 billion in 2022-23 to $11.8 billion in the most recent fiscal year.
Liberal critic René Legacy says having a stronger balance sheet does not eliminate issues in health care, housing and education.
This report by The Canadian Press was first published Sept. 16, 2024.
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