- The Canadian economy declined for the second straight month in May, contracting by 0.3%, in line with Statistic’s Canada’s preliminary estimate. This left GDP 1.5% below its pre-pandemic (February 2020) level.
- Along with May GDP data, Statistics Canada produced an advance estimate for June, which showed a 0.7% rise in GDP, coinciding with the lifting of restrictions across the country.
- By industry, both the goods (-0.4%) and services (-0.2%) sectors observed declines in May. On the goods side, construction (-2.3%) was especially weak as residential (-4.2%) and repair (-3.7%) construction took a tumble during the month. Manufacturing also dropped in May with output declining by 0.8%. The global microchip shortage continued to weigh on production in this sector.
- In terms of services, ongoing public health restrictions contributed to declines in the retail (-2.7%), accommodation and food (-2.4%), and arts, entertainment, and recreation (-2.5%) industries. The real estate and rental and leasing sector (-0.4%) also slipped, contracting for the second straight month. This was the first time this occurred since March-April 2020.
Key Implications
- May was another bleak month for the Canadian economy. The third wave of the pandemic and related restrictions weighed on activity, but this was compounded by the cooling residential sector. As housing sales and construction levels gradually return to more sustainable levels, this area of the economy could be a drag on growth in coming months.
- Looking ahead, the economy’s two-month losing streak will end in June. Statistics Canada has indicated that output will probably see a significant improvement on the month as reopening took place across the country. Consumers returned to spending on high-contact services including in-person dining, recreation activities, and travel that had long been restricted to them. Indeed, high-frequency debit and credit card spending data suggests exactly this in June and early July.
- It may not be smooth sailing for the rest of the recovery. Economic gains are still very much tied to the whims of COVID-19. The Delta variant is wreaking havoc around the world, leading to a re-tightening of restrictions in some countries. Canada has so far avoided the worst of this virus, but cases are rising in some provinces. A fourth wave could lead to another stalling in the recovery though with relatively high rates of vaccination a full reversal appears less likely.
