Canada: Economic growth ticks down in January; flash estimate for March points to the sharpest decline on record
The economy expanded 0.1% month-on-month in January, which was softer than December’s 0.3% increase and met market expectations. Economic growth was 1.8% year-on-year in January, which was also slightly slower than December’s 1.9% rise.
Moreover, on 15 April Statistics Canada released a special flash estimate of GDP for March to provide an estimate of the scale of economic disruption resulting from Covid-19 containment measures. The preliminary figure pointed to a sharp 9.0% decline in activity on a month-on-month seasonally-adjusted basis—the steepest fall since current records began back in 1961.
January’s result was driven by growth in the manufacturing; finance and insurance; and wholesale and retail trade sectors, while the energy and utilities sectors contracted sharply. Statistics Canada did not release a detailed breakdown for March, but noted the travel and tourism, transportation, and restaurants and accommodation sectors were among the hardest hit due to the Great Lockdown. Moreover, despite the sharp decline in energy prices and a pullback in investment activity into the energy sector, March’s preliminary data indicated volume of oil and gas extraction was largely unaffected in March.
Together with January’s soft reading and March’s plunge in activity, the first quarter was likely one of the worst on record, and economic conditions are expected to further worsen in Q2 as containment measures intensified in April. Stimulus measures taken by the government, the Bank of Canada and other publicly-owned corporations should cushion the flagging economy going forward. Nevertheless, the economy is still seen contracting at the sharpest pace since the 2008–2009 Global Financial Crisis, with risks heavily skewed to the downside. Depressed oil and gas prices could force policymakers to curtail production to balance markets, which would serve a severe blow to the energy sector and the economy at large this year.
Commenting on the flash estimate, Brian DePratto a senior economist at TD economics, noted:
“The March figure implies that real GDP contracted by around 9.5% to 11% (annualized) over the first quarter as a whole, although both this and the monthly figure will be subject to revision as more data becomes available[…] Taking Statistics Canada’s nowcast into account from this morning, this implies an annualized contraction in Q2 of between -40% and -70%, though annualized figures have little meaning in this context given the nature of the shock.”