Canada: GDP contracts in April; preliminary estimate points to an identical drop in May
June 30, 2021
The economy fell 0.3% month-on-month in April, contrasting March’s 1.3% increase, but noticeably softer than Statistics Canada’s preliminary estimate of a 0.8% drop made in early June. Economic activity surged 20.0% year-on-year in April, which was stronger than March’s 6.9% increase, and predominately driven by a low base effect due to heightened restrictions to curb the spread of the virus in the same month last year.
In April, the goods-producing industries grew at a weaker pace due to a slower expansion in mining, quarrying, and oil and gas extraction activity. Moreover, manufacturing output fell, after rising robustly in March. Meanwhile, the services-producing industries contracted, particularly due to flagging wholesale and retail trade, which contrasted the increases recorded in the month prior.
Moreover, Statistics Canada released a special flash GDP estimate for May to provide a snapshot of the state of the economy. The preliminary figure pointed to another 0.3% decrease in activity on a seasonally-adjusted month-on-month basis. Although a detailed breakdown was not released, the flash estimate attributed May’s dip to weaker retail trade and construction activity.
Looking ahead, the economy is still expected to rebound robustly in H2 this year as the impact of the Covid-19 pandemic and subsequent lockdown measures fades. Moreover, strong fiscal and monetary stimulus, coupled with a recovery in labor market conditions, should support domestic demand. That said, uncertainty around the pandemic remains a key downside risk to the outlook.
Commenting on the report and short-term outlook, Sri Thanabalasingam, senior economist at TD Economics, noted:
“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.”
Author: Steven Burke, Economist