Canada: GDP contracts at sharpest rate in 11 years in Q1
Economic activity plunged in the first quarter, with seasonally-adjusted annualized (SAAR) output contracting 8.2% (Q4 2019: +0.6% SAAR), but beat market expectations of a 10% fall. In annual terms, the economy dipped 0.9% in the first quarter, contrasting the previous quarter’s 1.5% expansion.
Domestic demand declined sharply in the first quarter, falling 6.0% after increasing 3.1% in the fourth quarter. Private consumption nosedived 9.0%, while government consumption dipped 3.8% in Q1. That said, fixed investment fell at a softer pace in the first quarter, falling 0.3% (Q4 2019: -2.4% SAAR).
On the external front, exports of goods and services contracted 11.3% in seasonally-adjusted annualized (SAAR) terms, after declining 4.5% in the quarter prior. Meanwhile, imports of goods and services decreased 10.7% in Q1, sharper than the 3.2% drop in Q4 2019. As a result, the external sector subtracted 0.2 percentage points from the first quarter’s headline growth, but less than the 0.4 percentage-points subtraction in the previous quarter.
Moreover, Statistics Canada also released a flash GDP estimate for the month of April on 29 May. The preliminary figure points to a 11.0% contraction on a month-on-month seasonally-adjusted basis, after the economy contracted 7.2% in March. This was softer than the 9.0% flash estimate released by Statistics Canada on 15 April.
Looking ahead, the economy is likely heading for a slow recovery as the hit to the labor market weighs on domestic demand, while production cuts in the energy sector drag on the external sector.
Commenting on the shape of Canada’s economic recovery, Benoit P. Durocher, senior economist at Desjardins, noted:
“Clearly, there is still a lot of uncertainty, and the way in which the pandemic evolves will be decisive in the coming months. However, everything leads us to believe that the recovery will be slow and that it will take the Canadian economy several quarters before it regains lost ground. It is also clear that the recovery will be more painful in some sectors, especially those related to tourism.”