- Canada GDP grew 0.4% in February, followed by another “approximate” 0.9% increase in March
- Easing in containment measures before the third round of restrictions push annualized Q1 GDP growth up 6 1/2%
- Growth likely decelerated in April but should resume through Q2 as vaccination ramps up
The increase in GDP in February and March came alongside some early easing in containment measures between the second and third wave of virus spread. And for the first time since last spring, growth can entirely be attributed to strength in service-producing industries. With the reopening of indoor shopping in some regions, retail sales reversed a large chunk of declines over December and January and accounted for more than half of the growth in February. Construction and real estate, rental and leasing both saw sizable increases as well. Mining, quarrying, and oil and gas extraction and manufacturing were the weak spots, with the latter weighed down by the ongoing global chip shortage.
An early (modest) recovery in the hospitality sector will likely be short-lived in the near-term. Output from accommodation and food services edged up 3.5% in February (the first gain in six months) and likely did so again in March. Still, activity among those high-contact services sectors remained sharply depressed, down 31% from a year ago in February. And the third wave of virus spread has delayed the beginning of the end of the pandemic shock, as production likely eased lower again in April alongside re-imposed containment measures. But we still expect those hardest-hit service sectors to drive output growth once restrictions begin to be more sustainably eased.
Overall, an approximate 0.9% increase in March would leave GDP up 6.7% (annualized) in Q1 – in line with the 7% increase from the BoC’s latest projections and tracking slightly above our own 6.0% forecast. Other sectors outside of those high-touch services have broadly continued to improve – notwithstanding ongoing supply-chain issues, particularly in some corners of the manufacturing sector. The pace of vaccination also continues to ramp up with Ontario and Quebec announcing that distribution could open up to all remaining unvaccinated adults before the end of May. And in the very near-term, containment measures are showing signs of effectiveness in some regions as case counts plateau.
