Canada’s GDP plunges by all-time record of 38.7% in Q2

Canada’s GDP contracted at an annualized rate of 38.7 per cent in the second quarter, according to Statistics Canada, but a better-than-expected recovery in June and July is making even the most bullish economists rethink their outlooks.

The harrowing decline in growth in the second quarter is the worst on record since the data was first recorded in 1961, although economists suspect it may very well be the worst showing since the Great Depression. Nothing was spared by the economic shutdown brought on by COVID-19, but trade suffered the deepest declines as imports sunk by 64.1 per cent and exports dropped 55.6 per cent. The quarter will also likely be remembered as having generated the largest decline in Canadian household spending on record.

Peak-to-trough, the current recession has already resulted in a 13.4-per-cent drop in GDP despite only lasting two quarters. In comparison, the peak-to-trough declines seen during the global financial crisis in Canada only hit 4.4 per cent, according to the National Bank of Canada.

“Economic damage was all-encompassing in the shutdown quarter, with absolutely every major spending category falling at least at double-digit annual rates,” Bank of Montreal chief economist Douglas Porter wrote in a note.

Economists expected the numbers to be this bad. In fact, the drop in growth was actually a bit better than Statistics Canada itself projected. What wasn’t foreseen was the economic rebound in June as GDP climbed 6.5 per cent.

The June number represents yet another record generated in the quarter, according to Canadian Imperial Bank of Commerce senior economist Royce Mendes. It wasn’t just higher than the consensus, it even toppled CIBC’s own projections, which were even more bullish, Mendes wrote.

Statistics Canada released its preliminary numbers for July which suggest continued growth for the economy, this time in the way of a three-per cent increase, which was also not projected by economists.

The combination of the June and July numbers and the strong savings numbers, both Porter and Mendes believe, are so good that they’ll each have to revise their outlook for the year.