Economy takes a record body blow
GDP shrank by 9% in March, early data shows
The Canadian economy had its worst month on record in March as GDP shrank by nine per cent, according to an unprecedented flash estimate published by Statistics Canada Wednesday to address the fallout of the COVID-19 pandemic.
Brought on by a combination of an economic shutdown and historically low oil prices, the decline was most evident in the travel and tourism sectors, StatCan noted. Related industries such as restaurants, accommodation and personal transportation were also significantly impaired while retail, entertainment and sporting events fared little better. StatCan did not publish data specifying the extent of the damage in each sector.
As a result of March’s freefall, GDP for the entire first quarter has been dragged down to -2.6 per cent — and that may only be the tip of the iceberg.
“Both the monthly and quarterly readings were materially worse than expected,” Royce Mendes, a senior economist at the Canadian Imperial Bank of Commerce, said. “Given that social distancing and government-mandated shutdowns were really only being heavily utilized during the second half of the month, data on April are almost surely to reveal a further decline in economic activity.”
In reaction to the StatCan figures, National Bank of Canada senior economist Krishen Rangasamy wrote in a note that Canadians can expect the second quarter to be even uglier, with GDP potentially contracting by more than 30 per cent, year-overyear. Royal Bank of Canada senior economist Josh Nye is just as pessimistic about Canada’s second quarter, forecasting a 32 per cent decline.
Economists at Canada’s largest banks have been forced to readjust projections for Canada’s economy on the fly as social distancing measures are extended.
Initially, most felt that Canada would see a V-shaped recovery that would see GDP bottoming out in May and bouncing back to prior levels near the end of the year. That theory has since been mostly discarded.
The Bank of Canada is finding it equally difficult. On Wednesday, the central bank was expected to release its own projections, but chose instead to withhold them, saying that it cannot release numbers with “any degree of confidence.”
Instead, the central bank released a “scenario analysis” of plausible outcomes related to the COVID-19 outbreak. The economic shutdown could result in anywhere between a 15 and 30 per cent decline in GDP from the fourth quarter of 2019, the Bank of Canada wrote in a report.
“Despite a high level of uncertainty, these estimates suggest that the near-term downturn will be the sharpest on record,” the report
THESE ESTIMATES SUGGEST THAT THE NEARTERM DOWNTURN WILL BE THE SHARPEST ON RECORD.
said. A sharp contraction in the global economy is “unavoidable,” it said.
Within Canada, Alberta will likely face the brunt of the pain in 2020, according to a provincial outlook published by The Conference Board of Canada.
Every province has fallen into recession, the not-forprofit think tank concluded, but low oil prices will result in Alberta leading the way with a 5.8 per cent decline to its GDP.
Due to its struggling mining industry, Saskatchewan is also projected to register a five per cent loss. The others, according to the report, will see GDP fall between 3.0 and 3.9 per cent.
But as StatCan writes, it’s not all bad news. Some sectors in the Canadian economy, such as food distribution, health, online retailing and streaming, demonstrated their growth potential in March. The oil and gas sector may have been struggling with historically low crude prices and plunging stocks, but StatCan said both extraction and transportation remained stable during the month and did not appear to be substantially impacted.
StatCan normally only publishes GDP data two months after the last reference data but felt it was necessary under the circumstances to release an early estimate, though it warned it wasn’t of the “same quality” as usual and would likely change when the full numbers are released in May.