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Canada GDP March 2021

Canada: GDP growth slows in February; preliminary estimate points to an acceleration in March

The economy grew 0.4% month-on-month in February, easing from January’s 0.7% increase, and falling slightly short of Statistics Canada’s preliminary estimate of 0.5% growth made on 1 April. Economic activity shrank 2.2% year-on-year in February, which matched January’s drop.

In February, the goods-producing industries declined slightly due to a sharp drop in mining, quarrying, and oil and gas extraction activity. Moreover, manufacturing output also fell, after rising robustly in January. That said, growth in the services-producing industries accelerated modestly, particularly due to a rebound in retail trade and stronger growth in the real estate, rental and leasing sector.

Moreover, Statistics Canada released a special flash GDP estimate for March to provide a snapshot of the state of the economy. The preliminary figure pointed to a 0.9% increase in activity on a seasonally-adjusted month-on-month basis. Although a detailed breakdown was not released, the flash estimate attributed March’s growth to the retail trade, manufacturing, and finance and insurance sectors. Consequently, the economy should have expanded 6.6% in seasonally-adjusted annualized terms (SAAR) in the first quarter of the year, which was softer than Q4’s 9.6% expansion. In annual terms, GDP should have expanded 0.3% year-on-year in Q1, after declining 3.2% in the prior quarter.

Looking ahead, the economy is expected to rebound robustly later 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 propel domestic demand. That said, still-tight lockdown measures due to elevated new Covid-19 cases and a slow rollout of the vaccine remain key downside risks to the outlook.

Commenting on the short-term outlook, Royce Mendes, senior economist at CIBC World Markets, noted:

“Data for the first quarter show that the economy was very resilient in the face of the second wave of the virus and grew further during the lull. However, we’ll have to wait and see how much pain will be inflicted by this latest rise in Covid-19 cases. We’re less optimistic than the Bank of Canada on the second quarter of this year, given how harsh restrictions have needed to be and the fact that there could be less of an offset to weakness in services coming from some goods sectors.”

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