- The Canadian economy shrank for the first time in a year in April, contracting 0.3% month-on-month. This was better than Statistics Canada’s preliminary estimate of -0.8%. Given April’s showing, economic output was 1.1% below its pre-pandemic (February 2020) level. Statistics Canada also produced a flash estimate for May GDP, which again showed a 0.3% contraction for the month.
- By industry, weakness was concentrated in the services sector (-0.6%), which was heavily impacted by tighter public health measures. Specifically, retail trade (-5.5%), accommodation and food services (-4.6%) led April’s downturn. On the flipside, health care and social assistance (+1.3%) posted another solid gain for the month.
- Unlike the services sector, GDP rose in goods-producing industries (+0.5%). Construction (+2.4%), and mining, quarrying, oil and gas extraction activity (+1.4%) led the way. Meanwhile, manufacturing declined 1% m/m owing in large part to an 8.6% drop in the transportation subsector. Motor vehicle (-20.9%), and motor vehicle parts (-13.4%) manufacturing were down substantially in April.
Key Implications
- The economy’s march towards a full recovery took a step back in April as the third wave and tighter restrictions weakened activity for the month. According to Statistics Canada’s flash estimate, the dampening effects of the third wave continued to be felt in May. With two months of the quarter in hand, the slowdown in the pace of the recovery in the second quarter for the Canadian economy is more clear. However, growth is tracking slightly better than what we had expected in our recent forecast.
- Unsurprisingly, the impacts of the public health measures were felt unevenly across industries. High-touch services (retail, accommodation and food services, arts, entertainment and recreation, and other services) were once again hardest hit, losing a collective 4% of output in April. Aside from high-touch industries, manufacturing also faced hurdles stemming from the global semiconductor shortage, which could continue to plague production in the near-term.
- That being said, April and May were likely temporary setbacks to the recovery. Better days are already here. Reopening across the country, falling cases and hospitalizations, and an extraordinary vaccine rollout, should lead to a rapid bounce back in economic activity. Although the delta variant could create some challenges, Canada’s inoculation pace could keep such risks at bay. The clouds are parting, the worst of the pandemic could finally be behind us.
