Canada: GDP growth loses momentum in Q4
GDP increased 9.6% in seasonally-adjusted annualized terms (SAAR) in the fourth quarter of 2020, moderating from the 40.6% expansion logged in the third quarter, but still significantly stronger than Statistics Canada’s 7.8% flash estimate. On an annual basis, GDP fell 3.2% in Q4, softening from the previous quarter’s 5.3% decrease.
The weaker expansion in SAAR terms was predominately driven by moderating domestic demand growth as a result of a tightening of some restrictions in November, with private consumption contracting 0.4% SAAR in Q4, contrasting the 63.4% surge in Q3. Meanwhile, fixed investment increased 9.6% in Q4, after soaring 72.1% in the previous quarter. Furthermore, government consumption growth also softened in the fourth quarter, posting a 6.2% rise compared to the 16.9% increase in the third quarter.
On the external front, exports of goods and services rose 5.0% on a SAAR basis in the fourth quarter, which was down from Q3’s 73.1% jump, while growth in imports of goods and services eased markedly to 10.8% SAAR in Q4 (Q3: +118.8% SAAR). Consequently, the external sector contributed negatively to overall growth in Q4, subtracting 1.8 percentage points; however, this was notably less than the 11.1 percentage-point subtraction in the third quarter.
Meanwhile, a flash estimate released by Statistics Canada showed the economy grew 0.5% on a month-on-month seasonally-adjusted basis in January, which was up from December’s 0.1% rise. Stronger output from the wholesale trade, manufacturing and construction sectors likely supported the faster increase in GDP for January.
Overall, the economy shrank 5.4% in 2020—the sharpest contraction since current records began back in 1961—after having expanded 1.9% in 2019. Turning to 2021, pent-up demand and roughly CAD 200 billion in excess household savings from last year will likely lead to an automatic rebound in domestic activity. Moreover, an ultra-accommodative monetary policy stance and sufficient fiscal measures should support a strong rebound in GDP. That said, a still-elevated unemployment rate following a recent spike in January, as well as ongoing Covid-19 restrictions and uncertainty over the evolution of the pandemic, will continue to hamstring momentum in the first half of 2021.
Commenting on the outlook, Sri Thanabalasingam, senior economist at TD Economics, noted:
“Looking ahead, the near-term picture is brightening. Provinces are gradually relaxing restrictions, the vaccine rollout has quickened, and case counts have trended lower. This should support growth in February and March, but the more contagious variants of the virus pose downside risks. If restrictions are lifted too quickly and the spread of the virus accelerates, provinces will be left with no choice but to close parts of the economy again. This could slow the speed of the recovery.”