Canada: GDP records largest contraction on record in Q2
August 28, 2020
GDP declined at a quicker rate of 38.7% in seasonally-adjusted annualized terms (SAAR) in the second quarter, well below the 8.2% contraction logged in the first quarter and marking the worst reading on record. On an annual basis, GDP fell 13.0% in Q2, down from the previous quarter's 0.9% decrease.
The downturn was broad-based and the result of strict lockdown measures in place for the majority of Q2, with private consumption, public spending and fixed investment all contracting. Private consumption dropped at a sharper rate of 43.0% SAAR in Q2 compared to the 12.4% contraction in Q1. Meanwhile, fixed investment dropped at a steeper pace of 45.6% in Q2, down from the 1.1% contraction recorded in the previous quarter.
On the external front, exports of goods and services fell 55.6% on a SAAR basis in the second quarter, which was below the first quarter's 8.6% contraction. In addition, imports of goods and services contracted at a sharper rate of 64.1% SAAR in Q2 (Q1: -9.9% SAAR). Consequently, the external sector contributed positively to the overall economy in Q2, adding 2.4 percentage points, which was up from the 0.4 percentage-point contribution in the first quarter.
Looking ahead, the economy should rebound in the second half. Indeed, the flash GDP estimate for July points to a 3.0% expansion on a month-on-month seasonally-adjusted basis. However, the hit to the labor market will weigh somewhat on domestic demand.
Commenting on the outlook, Benoit P. Durocher, senior economist at Desjardins, noted:
“The recovery of the Canadian economy is clipping along. That said, it still has quite a way to go before returning to a pre-pandemic level. There is still much uncertainty, and the recovery has been uneven across sectors. Furthermore, the possibility of a second wave of the pandemic later in the year cannot be completely ruled out.”
Author: Steven Burke, Economist