Canada begins slow climb out of economic crater
Canada’s economy is crawling out of its deepest hole since the Great Depression, but the path will be long.
Numbers released Tuesday show an unprecedented 11.6-per-cent plunge in gross domestic product in April, the first full month of lockdowns to curb the COVID -19 pandemic. That’s worse than the previous record drop of 7.5 per cent recorded in March.
It’s the fullest picture yet of what is likely to be a very short recession, with a flash estimate suggesting the economy is already bouncing back.
But the report also reveals the damage was profound and will require years to reverse.
“The mindset has already shifted to people saying April is the trough,” said Beata Caranci, chief economist at Toronto-dominion Bank. “The question is where to from here.”
The good news is the first month of recovery in May was also one for the record books. Activity surged as provincial governments began easing restrictions, with GDP rising three per cent, according to Statistics Canada’s initial estimate.
That would be the biggest monthly increase ever and another strong gain is expected in June.
Yet policy-makers, economists and businesses remain guarded and are warning not to assume these growth rates will continue beyond the reopening phase.
“Every time a province announces a reopening, you have those establishments rehire,” Caranci said by phone. “But it’s not like they continue to rehire — they get a bit of an accordion effect of activity and then it kind of goes into a holding pattern.”
She said her team doesn’t expect a full recovery this year or next. Without widespread use of a vaccine, businesses are unlikely to operate at 100 per cent capacity.
The March and April data are a litany of economic woe. The cumulative decline in output was 18.2 per cent — almost eight times any previous two-month drop in records dating to the early 1960s. The economy — hit both by COVID closures and collapsed oil prices — saw a quarter of its labour force lose work or significant hours.
In response, Prime Minister Justin Trudeau has doled out $174 billion in direct spending so far, with programs ranging from an emergency cash benefit and wage subsidy to interest-free small business loans and commercial rent subsidies. That’s driving Canada’s budget deficit to five times the previous record.
The nation, meanwhile, is embarking on the path to recovery at a vulnerable time. Its oil sector is struggling. Its households are among the most indebted in the world. Immigration — a key growth driver — is being curbed by travel bans and closed borders.
Trudeau’s government has won praise for getting money out the door quickly. Yet strains are beginning to appear. Fitch Ratings stripped Canada of its AAA status last week because of a spike in emergency spending for COVID -19, making it the first top-rated country to be downgraded during the pandemic.