- Canada GDP grew 1.2% in August, and has now retraced three quarters of activity lost in spring
- Preliminary estimate of 0.7% growth in September pins Q3 rebound at slightly above 45% (annualized)
- Outlook beyond September clouded by virus spread and containment measures
GDP in Canada grew 1.2% in August, a bit higher than StatCan’s prelim estimate from a month ago but nonetheless a marked slowdown from an average growth rate of 4.8% over each of the prior three months. Output has retraced around 75% of the losses earlier in spring, but still sits around 5% below pre-Covid (February) levels. Services industries contributed 90% of the growth in August, led by expansion in the public sector (educational services, health care and social assistance, and public administration) as all sub-components continue to rebound from spring lows. Oil and gas extraction contracted again in August amid low oil prices. Hard-hit industries like food & accommodation and arts, entertainment, & recreation have lagged behind but also continued to recover in August as virus case counts remained low and containment measures eased. That growth probably extended into September, and Statistics Canada’s preliminary estimate is that GDP rose another 0.7% in that month. That’s pinning the quarter over quarter output growth in Q3 at slightly above the 45% (annualized) rebound we’ve previously expected.
The bigger concern is how much of that Q3 growth can be sustained beyond September. COVID cases have been on the rise, prompting local governments to re-introduce some containment measures in hotspots. The less stringent and more targeted response this time around probably means activity held up much better than it did back in April. But the economic rebound was already slowing ahead of the virus resurgence, and there is still clearly a risk that broader containment measures could yet be needed. Growth in activity for the industrial sector and some services industries like retail and professional services likely persisted beyond September. But hospitality industries, alongside the oil and gas sector, will once again face much bigger challenges as demand weakens. Our current baseline assumption has GDP edging up just 1% in the final quarter of 2020, in line with the Bank of Canada’s most recent economic projections.
