Canadian economy tops growth forecasts, avoids second-wave downturn with ‘pleasant upside surprise’

The Canadian economy showed resilience over the winter months, managing to escape the second wave of COVID-19 without a decline in overall output.

Real gross domestic product rose 0.7 per cent in January, outrunning a previous estimate of 0.5 per cent, Statistics Canada said Wednesday. That leaves economic activity about 3 per cent lower than prepandemic. A further 0.5-per-cent expansion is estimated for February.

Heading into the winter, the fear was that economic output would fade somewhat on account of rapidly rising COVID-19 cases that prompted tighter restrictions. Notably, the Bank of Canada forecast that real GDP would drop at a 2.5-per-cent annualized pace in the first quarter.

Instead, the economy has emerged from the second wave in seemingly better shape, helped by resurgent commodity prices, a breathless housing boom and minimal job losses outside of public-facing industries. That leaves Canada on course for a year of stellar growth that undoes a great deal of the damage inflicted by the pandemic.

“This is yet another pleasant upside surprise,” said Bank of Montreal chief economist Doug Porter in a note to investors. “Given that we are now facing yet new restrictions in many regions, the economy’s ability to soldier forward through the shutdowns is truly encouraging.”

Wednesday’s report was emblematic of the localized nature of economic troubles. Real GDP fell in January in the hospitality, retail and transportation industries, all subject to tighter public-health measures that month. Still, that weakness was offset elsewhere.

Wholesale trade jumped 3.9 per cent in January, bolstered by imports of machinery and demand for building supplies. Manufacturing rose 1.9 per cent, supported by higher sales and inventories. Mining, oil and gas extraction expanded 2.7 per cent – a fifth consecutive monthly increase – as oil sands facilities in Alberta ramped up production.

Over all, growth was stronger in the goods-producing sector (1.5 per cent) than in services (0.4 per cent).

The impact from the real-estate industry was apparent. Construction activity rose 1.4 per cent, with residential construction growing 3.1 per cent. Furthermore, Statscan noted that banks benefited from a 7.1-per-cent increase in households’ total mortgage debt, relative to a year earlier.

As ever, economic momentum is tenuous, in light of rising COVID-19 cases in much of the country. B.C. is grappling with a third wave and recently imposed a three-week “circuit breaker” lockdown that prohibits dine-in service at restaurants and bars, among other things.

“A faster distribution of vaccines would go a long way to easing the weight of the pandemic on the economy,” said Toronto-Dominion Bank senior economist Sri Thanabalasingam in a note. “The pace of the rollout has accelerated in recent weeks, but it must continue to do so in order to allow for a safer reopening of the economy through the spring and summer. Supply-chain issues or vaccine hesitancy could further complicate the economic recovery.”

For now, the third wave hasn’t provoked a rethink of Canada’s recovery path. The median estimate from private-sector economists is that real GDP will grow 5.4 per cent this year, and several domestic banks have pencilled in growth of around 6 per cent.

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Source: – The Globe and Mail

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