COVID-19 lockdowns choked off 11.6% of Canadian real gross domestic product in April, the biggest one-month economic downturn on record – but preliminary evidence indicates that the economy took the first tentative recovery steps in May.
On June 30 Statistics Canada said that April’s GDP plunge was the largest since the agency began producing comparable data in 1961. That came on top of a 7.5% slump in March. The two months combined leaves the economy more than 18% below its level in February.
But Statscan’s preliminary data suggest the economy grew by about 3% in May, as COVID-19 containment measures began to ease. While the May upturn was modest compared with the depth of the fall, it nevertheless confirms economists’ views that the worst of the economic damage is behind us.
“The good news, such as it is, is that there are plenty of signs that April will mark the nadir,” Bank of Montreal chief economist Douglas Porter said in a research note. “We expect a bigger bounce in June as the economy reopened more fully.”
Still, the April GDP report provided a stark look at just how harsh the economic blow was from the COVID-19 lockdowns and where it hit hardest.
The accommodation and food services sector plunged 42% in April, on top of a 37% fall in March. Manufacturing slumped 22.5%, led by a 97.7% loss in motor vehicle output, as automakers in Canada and the United States were shut down for the month. Construction and retail were both down 23% in April. The arts, entertainment and recreation segment lost 26%, after a 41% in March.
Statscan said no industry was spared, as all 20 of the major sectors of the economy posted losses for the month. However, a few were only modestly affected, including the agriculture, fishing and forestry segment (down 1%); the financial sector (down 1%); and utilities (down 1.8 %). Canada’s energy sector, its biggest source of exports, fell a relatively modest 5.6%.
Statistics Canada noted a jump in output of 17.3% from online shopping as households shifted their shopping habits. The silver lining in the horrible April numbers may be that it marked the bottom of this short but extremely deep recession, CIBC chief economist Avery Shenfeld said.
Economists said that even with the turnaround in May, the COVID-19 measures have left the economy in a historic hole. “As of May, the economy was still operating almost 16% below the level it was in February. To put that into perspective, during the worst of the [2008-09] financial crisis, the Canadian economy was not operating more than 5% below its prior peak,” Canadian Imperial Bank of Commerce economist Royce Mendes said in a research note.
The April data and preliminary May GDP estimate suggest the economy is on track for a quarter-over-quarter contraction of about 10% for the second quarter, which wrapped up on June 30 – consistent with economists’ forecasts over the past several weeks. Many of them have turned their attention to early signals of activity as the economy emerges from its slumber, to gauge just how robust a rebound we can expect in the near term.
Bank data on credit- and debit-card transactions suggest that, by mid-June, consumer spending had nearly returned to the pace before the lockdowns. Economists were also surprised by how much the labour market bounced back in May, although employment remains a far cry from its pre-COVID-19 levels.
On June 29, the Conference Board of Canada reported that its consumer confidence index improved across all regions in June. The Canadian Federation of Independent Business said that nearly three-fifths of small businesses are fully open, almost one-quarter are making normal sales, and just over one-third are back to normal staffing levels.
Several coming indicators will help paint a more detailed picture of the recovery, starting with the July 2 release of international trade data for May. Economists will be particularly interested in the June labour force survey, slated for release on July 10, as well as the Bank of Canada’s long-awaited update of its economic forecasts on July 15.
But most experts share the view that after an initial summer bounce with the easing of containment measures, the economy faces a long, slow recovery over the ensuing months, with COVID-19 worries, continuing restrictions and potential renewed outbreaks continuing to constrain activity. “The path back for the economy continues to look long and winding, particularly with cases of the virus picking up again in a number of countries across the world, of course most notably in Canada’s largest trading partner, the U.S.,” Mr. Mendes said.
“Nothing like this has ever happened in our lifetimes; we are in uncharted territory, and the virus will determine the future course of the economy,” said Sherry Cooper, chief economist at Dominion Lending Centres. “It is crucial … that we not assume the worst is over and let down our guard.”