Canada: GDP growth eases in the first quarter on falling inventories
GDP increased 5.6% in seasonally-adjusted annualized terms (SAAR) in the first quarter of 2021, moderating from the 9.2% expansion logged in the fourth quarter of last year. On an annual basis, GDP rose 0.3% in Q1, contrasting the previous quarter’s 3.1% decrease.
The weaker expansion in SAAR terms was predominately driven by a stark fall in inventories, and came despite domestic demand growth accelerating in the quarter. Private consumption increased 2.7% on a SAAR basis in Q1, after rising 0.9% in Q4 2020, while fixed investment soared 17.0% in the first quarter, following the previous quarter’s 10.6% jump. Furthermore, government consumption growth accelerated to 6.2% in Q1 from 5.7% in the fourth quarter.
On the external front, exports of goods and services rose 6.0% on a SAAR basis in the first quarter, which was up from Q4 2020’s 4.1% increase, while growth in imports of goods and services eased markedly to 4.3% in Q1 (Q4 2020: +11.6% SAAR). Consequently, the external sector contributed positively to overall growth in Q1, adding 0.1 percentage points, in contrast to the 0.6 percentage-point subtraction in the fourth quarter.
Meanwhile, a flash estimate released by Statistics Canada showed the economy shrank 0.8% on a seasonally-adjusted month-on-month basis in April, which contrasted March’s 1.1% expansion.
Commenting on the outlook for the second quarter, Sri Thanabalasingam, senior economist at TD Economics, noted:
“The third wave is posing near-term challenges for the economic recovery. More stringent measures enacted in April, including shutdowns of workplaces with reported outbreaks by some jurisdictions, drove the estimated decline of 0.8% in GDP for the month. With many restrictions still in place through May, the economy probably did not do that much better in the second month of the second quarter.”