Canada: GDP rebounds at quickest pace on record in Q3
GDP increased 40.5% in seasonally-adjusted annualized terms (SAAR) in the third quarter, rebounding from the 38.1% contraction logged in the second quarter and marking the quickest pace of growth since current records began in 1961. On an annual basis, GDP fell 5.2% in Q3, softening from the previous quarter’s 12.5% decrease.
The expansion in SAAR terms was predominately driven by recovering domestic demand as a result of easing lockdown measures in the quarter, with private consumption, public spending and fixed investment all surging. Private consumption soared 62.8% SAAR in Q3, contrasting the 44.3% contraction in Q2. Meanwhile, fixed investment increased 69.2% in Q3, after contracting 44.6% in the previous quarter. Furthermore, government consumption also rebounded robustly in the third quarter, posting a 13.5% rise compared to the 12.3% decline in the second quarter.
On the external front, exports of goods and services jumped 71.8% on a SAAR basis in the third quarter, swinging from Q2’s 56.7% contraction, while imports of goods and services increased 113.7% SAAR in Q3 (Q2: -65.0% SAAR). Consequently, the external sector contributed negatively to the overall economy in Q3, subtracting 10.0 percentage points, which was in contrast to the 2.3 percentage-point contribution in the second quarter.
Looking ahead, the economy is expected to rebound robustly next year as the impact of the pandemic and subsequent lockdown measures fades. Ample fiscal and monetary stimulus measures should stimulate domestic demand, while the rollout of a vaccine as early as January, coupled with higher crude oil prices, should support the external sector. Nevertheless, a frail labor market and subdued oil production bodes poorly for the pace of the rebound in 2021.
Commenting on the outlook, Benoit P. Durocher, senior economist at Desjardins Group, noted:
“The Canadian economy isn’t out of the woods yet. Real GDP is still about 5% below its pre-pandemic level. Short-term uncertainty remains high, and the end of 2020 and start of 2021 will be marked by the second wave of the pandemic. Fortunately, the latest news about a vaccine is encouraging. This should eventually help put Canada’s economic recovery on solid footing.”