Canada: GDP contracts in the second quarter
GDP decreased 1.1% in seasonally-adjusted annualized terms (SAAR) in the second quarter of 2021, contrasting the 5.5% expansion logged in the first quarter. On an annual basis, GDP rose 12.7% in Q2, accelerating from the previous quarter’s 0.3% increase.
The contraction in SAAR terms was predominately driven by a 3.2% decline in fixed investment, after rising 16.6% in the first quarter. Moreover, private consumption growth eased to 0.2% in Q2, slowing from Q1’s 2.6% expansion. Meanwhile, government consumption growth dipped slightly to 6.1% from 6.9% in Q1.
On the external front, exports of goods and services declined 15.0% on a SAAR basis in the second quarter, which contrasted the first quarter’s 3.3% increase, while imports of goods and services fell 0.2% in Q2 (Q1 2021: +4.3% SAAR). Consequently, the external sector contributed negatively to overall GDP in Q2, subtracting 1.2 percentage points, which was more than the 0.1 percentage-point subtraction in the first quarter.
Meanwhile, a flash estimate released by Statistics Canada showed the economy shrank 0.4% on a seasonally-adjusted month-on-month basis in July, which contrasted June’s 0.7% expansion.
Commenting on the outlook, Sri Thanabalasingam, senior economist at TD Economics, noted:
“Looking further ahead, clouds are forming for the Canadian economy. Primarily, the Delta variant is spreading quickly in Canada, resulting in an uptick in cases and hospitalizations. International experience suggests this could be the beginning of a prolonged battle with this strain of the virus. Provinces and businesses are already responding to the threat with a number of policies such as vaccine passports, mandatory vaccinations and regular testing. While this will likely help mitigate the impact of the fourth wave, business and consumer confidence could be negatively affected. The pandemic is not yet over, and as long as its here, the road to recovery will be a bumpy one.”