Canada's economic recovery heading towards an uncertain future after a sunny summer
Canada’s economic rebound from the hits taken during the early days of the coronavirus pandemic continued in August, but economists see those sunny months of summer growth giving way to a choppy and uncertain future.
Statistics Canada on Friday reported that the country’s real gross domestic product (GDP) expanded by 1.2 per cent in August over July, when economic output rose by 3.1 per cent.
Canada’s economy has now officially expanded for four months in a row after suffering record blows in March and April because of the pandemic and government-imposed lockdowns and restrictions on businesses. Moreover, the growth in August was relatively widespread, with 15 of the 20 industrial sectors that the agency tracks expanding.
But Statistics Canada reported that overall economic activity was still around five per cent below its pre-pandemic levels in February. It also added that early indications are economic growth will slow to about 0.7 per cent in September, which would mean overall third-quarter growth of approximately 10 per cent.
Canada is now “in a phase of the recovery that could see strong winds and dangerous tides,” Toronto-Dominion Bank economist Sri Thanabalasingam said in a report on the latest GDP numbers.
“Navigating through the turbulence will not be easy as much will depend on the course of the virus,” he added. “Getting the spread under control could right the ship, but seas will remain choppy without a vaccine or effective treatment.”
The latest figures from Statistics Canada also line up with the Bank of Canada’s declaration earlier this week that the economy has moved out of its rip-roaring recovery phase and into a slower-growth “recuperation” stage.
Furthermore, a similar prediction about uncertainty was delivered this week by Bank of Canada governor Tiff Macklem, who said the bank sees annual growth averaging nearly four per cent in 2021 and 2022, but that the expansion could be better for some industries than others.
Some parts of the economy will be unable to totally reopen until there’s a vaccine, he said, while rising and falling infection rates will influence how consumers and businesses behave and prompt varying levels of government-enforced restrictions.
“We expect business investment to remain weak as uncertainty persists and exports to grow only slowly,” Macklem said, according to a copy of his remarks. “When we add it up, the Governing Council projects that the economy will still be operating below its potential into 2023.”
Some of the growth through the summer months was generated by hard-hit businesses that are once again subject to restrictions, such as bars, restaurants and gyms. Other sectors, like education, have had one-off booms in activity.
Statistics Canada said the education industry expanded by 3.4 per cent in August as schools prepared for students to return to classrooms. This activity, the agency said, “partly contributed to an atypical August increase in an atypical year as educational services continue to recover from low spring levels.”
Bank of Montreal chief economist Douglas Porter on Friday said he suspects that fewer restrictions, ongoing financial support from governments and the way that consumers and businesses have adapted to the pandemic could make for a more forgiving slowdown.
Porter and BMO expect “modest growth overall” for the fourth quarter of 2020, although that forecast could be subject to pandemic-caused uncertainty.
“While no big surprise, the August GDP report (and September flash) is another signal that the Canadian economy responded to the initial reopening with more force than generally expected,” he said. “The way forward has been deeply clouded by the second wave and renewed restrictions, so growth will cool considerably in (the fourth quarter).”
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