- Canadian economic activity fell an unprecedented 9% month-on-month in March. This according to Statistics Canada’s similarly unprecedented public ‘nowcast’ that came even as several key indicators for February are yet to be released. The March figure implies that real GDP contracted by around 9.5% to 11% (annualized) over the first quarter as a whole, although both this and the monthly figure will be subject to revision as more data becomes available.
- Indeed, given the highly unusual nature of this release, Statistics Canada cautioned against reading too much into the report – many key inputs are not yet available, hence significant revisions are likely both as monthly inputs such as manufacturing sales become available, and when the ‘standard’ quarterly estimate of GDP by expenditure (i.e. consumption, investment, etc.) are released.
- Nevertheless, today’s report provides a helpful early read on where the impacts of COVID-19 and social distancing other public health measures are greatest. While no industry level figures were provided, Statistics Canada reported that the hardest hit industries included travel and tourism, including personal transportation, as well as restaurants, and accommodation services. Also hard hit were personal services, non-food retailing, and entertainment broadly defined (sporting events, movie theatres, etc.). Activity in the government and education sectors was also down “dramatically” owing to the rapid nature of the shock that meant remote work and distance learning were not always immediately available.
- Conversely, the release notes that the health sector, food distribution and online retailing and streaming services have been growing. Statistics Canada further noted that despite weak oil prices, activity in the sector did not appear to have been meaningfully impacted (on a volume basis) as storage facilities were still being filled.
Key Implications
- Statistics Canada managed to turn 60 days into 14, releasing an initial estimate of March in a quarter of the normal time. It will be subject to revision, but the early picture today’s data paints is not an uplifting one. Social distancing and other measures had only began in earnest around mid-March, but the sudden stop of activity in nearly every major sector was enough to smash records, generating the worst monthly outcome in the current record. Just the half month stop late in the quarter was enough to generate an impact likely worse than anything seen here during the global financial crisis.
- As shocking as today’s figures are, we are in for worse as the impact of ‘full’ social distancing and other measures such as emergency declarations that shut down non-essential businesses earlier this month will only be evident in the data with the fullness of time. Uncertainty around the timing for a (likely gradual) relaxation of pandemic response measures leaves a great deal of uncertainty around the outcomes, but it seems a safe bet that more records are going to be smashed when the second quarter figures are available.
- Given the scale of their response so far, this nowcast is probably not much of a surprise for the Bank of Canada, due to make their policy interest rate decision at 10:00ET this morning. More interesting than near-term estimates will be the Bank’s view of the post-pandemic recovery, particularly whether they view the long-term trend in economic growth as being ‘scarred’ by the dramatic economic contractions we got the first taste of today.
