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Canada's economy sees record quarterly slump; June gains suggest early COVID-19 efforts 'paying off' – The Globe and Mail

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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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U.S. economy plunges 31.4 per cent in spring but big rebound expected – CTV News

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WASHINGTON —
The U.S. economy plunged at an unprecedented rate this spring and even with a record rebound expected in the just-ended third quarter, the U.S. economy will likely shrink this year, the first time that has happened since the Great Recession.

The gross domestic product, the economy’s total output of goods and services, fell at a rate of 31.4% in the April-June quarter, only slightly changed from the 31.7% drop estimated one month ago, the Commerce Department reported Wednesday.

The government’s last look at the second quarter showed a decline that was more than three times larger than the fall of 10% in the first quarter of 1958 when Dwight Eisenhower was president, which had been the largest decline in U.S. history.

Economists believe the economy will expand at an annual rate of 30% in the current quarter as businesses have re-opened and millions of people have gone back to work. That would shatter the old record for a quarterly GDP increase, a 16.7% surge in the first quarter of 1950 when Harry Truman was president.

The government will not release its July-September GDP report until Oct. 29, just five days before the presidential election.

While President Donald Trump is counting on an economic rebound to convince voters to give him a second term, economists said any such bounce back this year is a longshot.

Economists are forecasting that growth will slow significantly in the final three months of this year to a rate of around 4% and the U.S. could actually topple back into a recession if Congress fails to pass another stimulus measure or if there is a resurgence of COVID-19. There are upticks in infections occurring right now in some regions of the country, including New York.

“There are a lot of potential pitfalls out there,” said Gus Faucher, chief economist at PNC Financial Services. “We are still dealing with a number of significant reductions because of the pandemic.”

In 2020, economists expect GDP to fall by around 4% , which would mark the first annual decline in GDP since a drop of 2.5% in 2009 during the recession triggered by the 2008 financial crisis.

“With economic momentum cooling, fiscal stimulus expiring, flu season approaching and election uncertainty rising, the main question is how strong the labour market will be going into the fourth quarter,” said Gregory Daco, chief U.S. economist at Oxford Economics.

“With the prospect of additinal fiscal aid dwindling, consumers, businesses and local governments will have to fend for themselves in the coming months,” Daco said.

The Trump administration is forecasting solid growth in coming quarters that will restore all of the output lost to the pandemic. Yet most economists believe it could take some time for all the lost output to be restored and they don’t rule out a return to shrinking GDP if no further government support is forthcoming.

So far this year, the economy fell at a 5% rate in the first quarter, signalling an end to a nearly 11-year-long economic expansion, the longest in U.S. history. That drop was followed by the second quarter decline of 31.4%, which was initially estimated two months ago as a drop of 32.9%, and then revised to a decline of 31.7% last month.

The slight upward revision in this report reflected less of a plunge in consumer spending than had been estimated. It was still a record fall at a rate of 33.2%, but last month projections were for a decline of 34.1%. This improvement was offset somewhat by downward revisions to exports and to business investment.

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US economy plunges 31.4% in spring but big rebound expected – BNN

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WASHINGTON — The U.S. economy plunged at a record rate in the spring but is poised to swing to a record increase in the quarter that is just ending.

The Commerce Department reported Wednesday that the gross domestic product, the economy’s total output of goods and services, fell at a rate of 31.4 per cent in the April-June quarter, only slightly changed from the 31.7 per cent drop estimated one month ago.

The new report, the government’s last look at the second quarter, showed a decline that was more than three times larger than the previous record-holder, a fall of 10 per cent in the first quarter of 1958 when Dwight Eisenhower was president.

Economists believe the economy will expand at an annual rate of 30 per cent in the current quarter as businesses have re-opened and millions of people have gone back to work. That would shatter the old record for a quarterly GDP increase, a 16.7 per cent surge in the first quarter of 1950 when Harry Truman was president.

The government will not release its July-September GDP report until Oct. 29, just five days before the presidential election.

While President Donald Trump is counting on an economic rebound to convince voters to give him a second term, economists said any such bounce back this year is a longshot.

Economists are forecasting that growth will slow significantly in the final three months of this year to a rate of around 4 per cent and could actually topple back into a recession if Congress fails to pass another stimulus measure or if there is a resurgence of COVID-19. There are upticks in infections occurring right now in some regions of the country, including New York.

“There are a lot of potential pitfalls out there,” said Gus Faucher, chief economist at PNC Financial Services. “We are still dealing with a number of significant reductions because of the pandemic.”

He said in addition to the possibility that Congress will not pass further stimulus support because of the sharp split between Democrats and Republicans over how much more is needed, there are other threats in the form of uncertainty over the upcoming election.

“All this political uncertainty has the potential to weigh on economic growth,” Faucher said.

The Trump administration says that solid growth in coming quarters that will restore all of the output lost by the pandemic.

So far this year, the economy fell at a 5 per cent rate in the first quarter, signalling an end to a nearly 11-year-long economic expansion, the longest in U.S. history. That drop was followed by the second quarter decline of 31.4 per cent, which was initially estimated two months ago as a drop of 32.9 per cent, and then revised to 31.7 per cent last month.

The slight upward revision in this report reflected less of a plunge in consumer spending than had been estimated. It was still a record fall at a rate of 33.2 per cent, but last month projections were for a decline of 34.1 per cent. This improvement was offset somewhat by downward revisions to exports and to business investment.

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U.K. economy slump not as bad as feared but still a record – CTV News

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LONDON —
The British economy did not contract as much as originally thought during the second quarter of the year when coronavirus lockdown measures were at their most intense — though the slump remained the worst on record and the biggest of all major economies.

The Office for National Statistics said Wednesday that the British economy contracted by 19.8% in the April to June quarter from the previous three-month period, slightly less than its previous estimate of 20.4%.

However, it said the British economy contracted by more than previously thought during the first quarter, when the virus started to affect business activity before the full restrictions on businesses were introduced on March 23. It now estimates that the economy shrank by 2.5% in the first quarter, against 2.2% previously.

“It is clear that the U.K. is in the largest recession on record,” the statistics agency said. “The latest estimates show that the U.K. economy is now 21.8% smaller than it was at the end of 2019, highlighting the unprecedented size of this contraction.”

That contraction is greater than those recorded by the other Group of Seven major advanced economies and more or less double the contractions seen in the United States and Germany.

Since May, when lockdown measures started to be eased, the British economy has managed to eke out three months of growth, which has helped it recoup around half of the output lost. However, with the virus spreading in the community once again and some lockdown measures re-imposed, there are worries that the British economy could start shrinking again.

Further risks relate to the lack of progress in post-Brexit trade discussions with the European Union. Though the U.K. left the bloc on Jan. 31, it is in a transition period that effectively sees it benefit from tariff-free trade until the end of this year. The discussions are about agreeing on the broad outlines of the trading relationship from the start of 2021.

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