Canada’s economy shrank at a record pace in the second quarter but by the end of the period showed signs of a rapid recovery from the pandemic trauma that forced businesses to close and put millions out of work.
The economy contracted at annualized pace of 38.7 percent in the three months ending June 30, the government statistical agency said in a statement.
Declines were recorded across the board amid a nationwide lockdown including in consumer spending, business investment, trade and tourism — in line with analyst forecasts, following an 8.2 percent contraction of Canada’s gross domestic product (GDP) in the first quarter.
After steep declines at the height of the Covid-19 outbreak in April and May, however, real GDP surged 6.5 percent in June.
And preliminary data for July forecasting a three percent bump in real GDP suggests the worst is over.
“It was a quarter to forget for Canada’s economy,” commented CIBC analyst Royce Mendes in a research note.
The drop in GDP, he said, was of “a magnitude never before… and was likely the worst performance since the Great Depression.”
But “things were looking up by the end of the second quarter” with “solid momentum” continuing into July, he added.
Mendes noted also that Canadians’ disposable incomes actually grew in the period as emergency government support more than offset a drag from a jump in unemployment.
That drove the household savings rate up to 28 percent, from seven percent, “potentially leaving some extra cash for spending in upcoming periods,” he said.
But senior TD economist Brian DePratto warned, “Many sectors are going to continue struggling in the absence of a vaccine.”
“We may be through the worst of it, but it is still a long road to normal.”
– Cautious consumers –
According to Statistics Canada, household spending fell 13.1 percent in the second quarter due to substantial job losses and few opportunities to spend as most stores and restaurants were closed and travel and tourism was restricted by the closure of the border.
Amid uncertainty at the height of the Covid-19 global outbreak, business investment was down 16.2 percent as construction activities slowed, plants closed, and oil prices slumped.
Export and import volumes fell sharply (-18.4 percent and -22.6 percent, respectively) as trading partners’ economies also shrank owing to their own measures to combat COVID-19 outbreaks.
Faced with lower imports and supply chain disruptions, businesses drew down inventories.
Lower exports of motor vehicles and parts, industrial machinery and equipment, aircraft and aircraft engines, intermediate metal products, travel services, and transportation services were slightly moderated by increased exports of farm and fishing products, nuclear fuel, and pharmaceutical and medicinal products.
Declines in import volumes, led by motor vehicles and parts, aircraft and aircraft engines, crude oil and crude bitumen, industrial machinery and equipment, travel services and transportation services, meanwhile, were partly offset by increases in imports of metal ores and concentrates, and intermediate metal products.
Businesses also curtailed investments in engineering structures and non-residential buildings, research and development, mineral exploration and software, as well as transportation.
Consumers, meanwhile, purchased fewer new and used passenger cars and trucks, “reflecting closures of car dealerships, income uncertainty, and reduced transportation needs as working remotely became more widespread for some professions,” Statistics Canada said.
Purchases of garments, clothing materials and footwear, food, beverage, and accommodation services, and transportation services were also down.
So too were home ownership transfer costs, renovations and new constructions.