Canada's GDP sees worst one-month drop on record in March — and April is going to be even worse – Financial Post

Canadian GDP had its worst one-month drop on record in March, but stark projections for April are fuelling the belief that the worst is yet to come.

Statistics Canada on Friday reported that the economy on an annualized basis shrank eight per cent during the first quarter, the worst decline since the financial crisis in 2009 and one that outpaced the five-per-cent blow dealt to the U.S. economy.

The grim figures were widely expected since the federal and provincial governments locked down the economy in an attempt to stop the spread of COVID-19.

RBC senior economist Nathan Janzen called the numbers “jaw-dropping” in a note, and said the 7.2-per-cent loss in March was unprecedented but could have been worse.

“That was easily the largest one-month drop on record but was still less-bad than feared,” he said. “Statistics Canada had earlier estimated the drop at nine per cent in March.”

The losses were across the board: 19 of the 20 sectors that Statistics Canada reports on yielded negative results. Only agriculture, forestry, fishing and hunting had an increase in activity.

The hardest-hit sectors — accommodation and food services and arts, entertainment and recreation — are the ones that heavily rely on consumer spending and each plunged by 40 per cent.

Consumers can’t be blamed for being more careful with their spending, which fell by nine per cent in the quarter to become the second-largest drop on record, given that talks of a recession were mounting.

Not even health care was spared, suffering an 11 per cent decrease in activity because of non-COVID-19-related medical care plunging, Janzen said.

But the economy was only locked down for half of March, so the numbers, while bad, may not paint a completely accurate picture.

“As the restrictions on activity only came into effect in the middle of March and oil firms slashed output in April, it is clear the data will get much worse,” Capital Economics senior Canada economist Stephen Brown said in a note.

Statistics Canada estimates the economy contracted 11 per cent in April. Janzen said GDP will have declined approximately 17 per cent between March and April, 3.5 times the entire cumulative 10-month, peak-to-trough decline in GDP during the financial crisis.

Brown is still projecting that GDP will begin to rise again in May and June — as the economy reopens — but it won’t be enough to stop GDP from free-falling in the second quarter.

The economist has penciled in a 45 per cent decline on an annualized basis, although that number may end up closer to 40 per cent, he said, because housing starts held up better than he expected and more oil production cuts may have taken place in March than April.

A positive turn for GDP in May, when Brown is projecting a five per cent gain, and in June, when he expects a 10 per cent boost, would reinforce the idea that the Canadian economy is past the worst.

The increased activity could be led by a new surge in consumer spending, CIBC senior economist Royce Mendes said in a note. The reduced spending, which has led the savings rate to jump to 6.1 per cent from 3.6 per cent, could “translate into pent-up demand and additional spending in the near-term as businesses reopen.”

Janzen also suggested the economy hit its trough in April.

“We expect things will begin to get better from this point,” he said.

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