Canada: GDP growth accelerates in November; Preliminary estimate points to a slowdown in December
January 29, 2021
The economy grew 0.7% month-on-month in November, picking up from October’s 0.4% increase, and beating Statistics Canada’s preliminary estimate of 0.4% made back on 27 December. Economic activity shrank 2.8% year-on-year in November, which was softer than October’s 3.4% drop.
In November, growth in the goods-producing industries accelerated, particularly due to a rebound in manufacturing activity and stronger growth in the mining, quarrying, and oil and gas extraction sector. That said, growth in the construction sector eased notably in November. In terms of service-producing industries, growth was steady in November as a rebound in retail trade was offset by a slight decline in the real estate, and rental and leasing sector.
Moreover, Statistics Canada released a special flash GDP estimate for December to provide a snapshot of the state of the economy. The preliminary figure pointed to a 0.3% increase in activity on a month-on-month seasonally-adjusted basis. Although a detailed breakdown was not released, the flash estimates attributed December’s growth to the real estate and mining sectors. That said, the retail and wholesale trade, and food and accommodation sectors weighed on growth in December due to tighter lockdown restrictions in most parts of the country to control the recent spike in new Covid-19 cases.
December’s estimate brings GDP growth for Q4 as whole to 7.8% in seasonally-adjusted annualized terms (SAAR), which is down from Q3’s record 40.5% SAAR expansion. Consequently, the economy contracted 5.1% in 2020 representing the sharpest drop since current records began back in 1961.
In 2021, the economy is expected to rebound robustly as the impact of Covid-19 and subsequent lockdown measures fades. Moreover, strong fiscal and monetary stimulus, coupled with a recovery in labor market conditions, should propel domestic demand. That said, the tightening of lockdown measures due to elevated new Covid-19 cases and, a slow rollout of the vaccine remains key downside risks to the outlook.
Commenting on November’s GDP reading, and Statistics Canada’s December estimate Nikita Perevalov, a senior economist at Scotiabank, noted:
“Such a robust outlook for Q4 is likely evidence of the impact of public health measures being less severe in the sectors at the epicentre of the pandemic, with continuing strong underlying growth in other industries. Looking ahead, the stricter measures imposed in January in Ontario and Quebec should at the very least lead to slower growth. However, on balance the likelihood of a contraction in Q1-2021 has diminished.”
Author: Steven Burke, Economist