Better-than-expected growth in November pushed the Canadian economy above pre-pandemic levels for the first time in nearly two years, but the Omicron surge in COVID-19 cases is expected to deal it yet another setback to start 2022. Statistics Canada reported that real gross domestic product grew for a sixth straight month in November, as it posted a monthly gain of 0.6% to bring it 0.2% above pre-pandemic levels recorded in February 2020.

The growth fizzled though to end the year as the agency said its initial estimate suggests real GDP in December was essentially unchanged. However, BMO chief economist Douglas Porter said the weakness could be short-lived.

He pointed to growth in November despite devastating flooding in British Columbia, and that the economy looks to have held its ground in December despite Omicron. “We know that the economy can come back pretty quickly when things reopen,” Porter said. “So, provided this latest, slight reopening that we’re seeing here at the start of February lasts, I would anticipate a pretty nice rebound in the economy through the rest of the quarter.”

The statistics agency also said its initial estimate is that the economy grew by 4.9% for the full year. The result, which won’t be finalized until March, is a turnaround from 2020 when the Canadian economy suffered its worst year on record as output shrank by 5.4%. Driving to the finish line of 2021, Statistics Canada estimated the economy grew at an annualized rate of 6.3% in the fourth quarter, which, if it holds up, would mark the fastest quarterly growth last year.

Gains in November were seen in wholesale trade, which saw its largest monthly growth since July 2020, and manufacturing. There was also growth in the finance and insurance sector that Statistics Canada attributed to atypically high trading activity in November as investors moved funds to safer assets because of the uncertainty linked to Omicron when it first emerged. Accommodation and food services also saw increases in November with more travellers and looser restrictions on capacity limits in bars and restaurants in Ontario and Quebec.

Canada’s men’s soccer team also helped strike an economic gain: Statistics Canada said the two World Cup qualifying matches in Edmonton in November, one of which Canada won 1-0, helped grow the arts and entertainment sector by 5.4%. Tu Nguyen, an economist with consulting firm RSM Canada, said the high vaccination rate across Canada has helped the recovery. “That allowed us to fill up arenas, and theatres, and hotels, and restaurants, and we saw a significant uptick in in-person activity,” Nguyen said.

Despite the growth for restaurants and sporting events, Stephen Brown, senior Canada economist with Capital Economics, noted the arts and entertainment sector was 20% below pre-pandemic levels, and accommodation and food services still far from its February 2020 mark.

The Bank of Canada warned that it expects Omicron to dampen spending in the first quarter, and slow growth to an annualized rate of about 2%. Whatever economic growth the country loses in the first quarter will be pushed to the second quarter of 2022, Nguyen said.

Despite an expected contraction in January, Royce Mendes, managing director and head of macro strategy at Desjardins, said he expects the central bank to look at the strong end of 2021 and go forward with a first rate hike in March.

Source: Globe and Mail
Source: Toronto Star
Source: Financial Post