- The Canadian economy grew at the slowest pace since the lockdown period in August, rising 1.2% month-on-month, just above Statistics Canada’s flash estimate of 1.0%. This left the level of GDP 4.6% below the pre-pandemic (February) level. Today’s release also came with Statistics Canada’s advance estimate for September and for the third quarter as a whole. Preliminary information suggests GDP rose by 0.7% in September, and by 10% non-annualized (or 46.4% annualized) for the entire third quarter.
- Both goods (+0.5%) and services-producing (+1.5%) industries saw output rise in August. Fifteen of the twenty industries recorded increases, while output in two were broadly unchanged in August.
- In terms of goods-producing industries, construction led the way, advancing 1.5% on the month. Residential construction (+1.8%) drove the pick-up in the sector, meanwhile, non-residential construction contracted 1.7%. The manufacturing industry also saw a sizeable increase in output, rising 1.2% in August. The strength was entirely attributed to durable manufacturing which grew 3.8%. Eight of 10 subsectors saw gains for the month. Conversely, non-durable manufacturing declined 1.6% with weakness concentrated in plastic and rubber products (-11.1%), chemical (-2.4%), petroleum, coal products (-3.7%), and food manufacturing (-0.8%).
- From a services perspective, the public sector (educational services, health care and social assistance, and public administration) continued to see increases in activity in August. Educational services rose 3.4% as school reopening efforts amid the pandemic contributed to stronger output. Similarly, healthcare and social assistance rose 1.6%. Still, activity in this industry was approximately 14% below its February level. Many doctor’s offices around the country continue to operate well below capacity due to social distancing measures. Finally, public administration was up 1.2% as government service locations continued to gradually reopen.
- Meanwhile, most of the industries hardest hit by the pandemic saw strong gains. Output in arts, entertainment and recreation and accommodation and food services rose by 13.7% and 7.3%, respectively, in August. However, the level of activity was still well below where it was in February for both industries (arts, entertainment and recreation: -47%, accommodation and food services: -28.2%). The only service industry to see a slight decline was transportation and warehousing, where output fell by 0.1% on the month.
Key Implications
- Canada’s economic recovery is losing steam. After quickly recouping 75% of the output lost during March and April, the economy is now moving into the recuperation phase, where additional gains in economic activity are harder to come by. With pandemic-related uncertainty weighing on business and consumer confidence, most industries are struggling to return to pre-pandemic levels of output.
- For some industries the pain is considerably sharper than others. Despite posting strong monthly gains, the high-touch industries (i.e. accommodation and food services, arts, entertainment and recreation) directly affected by the virus, are not close to pre-pandemic levels of output and as long as the pandemic is around, they are unlikely to get there. Given the tighter restrictions Ontario and Quebec placed on these businesses this month, it will be an especially rough winter for these industries.
- We are now in a phase of the recovery that could see strong winds and dangerous tides. Navigating through the turbulence will not be easy as much will depend on the course of the virus. Getting the spread under control could right the ship, but seas will remain choppy without a vaccine or effective treatment. Calmer waters are still a long way away for the Canadian economy.
