The Canadian economy has been resilient during the winter months, successfully escaping the second wave of COVID-19 without a drop in overall production.
Real gross domestic product rose 0.7% in January, beating the previous estimate of 0.5%, Statistics Canada said on Wednesday. This leaves economic activity about 3% lower than that of pre-pandemic. A further 0.5% expansion is slated for February.
As winter approached, there were concerns that economic output could decline somewhat due to the rapid increase in COVID-19 cases which have resulted in tighter restrictions. Notably, the Bank of Canada forecast real GDP to fall at an annualized rate of 2.5% in the first quarter.
Instead, the second wave economy emerged in a seemingly better shape, aided by a resurgence in commodity prices, a breathless housing boom, and minimal job losses outside public industries. This leaves Canada on track for a year of meteoric growth that is reversing much of the damage inflicted by the pandemic.
“This is another pleasant surprise on the upside,” Bank of Montreal chief economist Doug Porter said in a note to investors. “Given that we are now facing new restrictions in many areas, the ability of the economy to cope with the closures is really encouraging.”
Wednesday’s report was emblematic of the localized nature of the economic turmoil. Real GDP fell in January in the hospitality, retail and transportation sectors, all subject to tougher public health measures this month. Yet this weakness has been offset elsewhere.
Wholesale trade jumped 3.9 percent in January, supported by imports of machinery and demand for building materials. The manufacturing sector rose 1.9%, supported by higher sales and inventories. Mining and oil and gas extraction increased 2.7% – a fifth consecutive monthly increase – as oil sands facilities in Alberta increased production.
Overall, growth was stronger in the goods-producing sector (1.5 percent) than in services (0.4 percent).
The impact of the real estate sector was evident. Construction activity increased 1.4 percent, while residential construction increased 3.1 percent. Additionally, Statscan noted that banks had benefited from a 7.1% increase in total household mortgage debt, compared to a year earlier.
As always, economic momentum is tenuous, in light of the increase in COVID-19 cases across much of the country. British Columbia is grappling with a third wave and recently imposed a three-week “breaker” lockout that bans food service in restaurants and bars, among others.
“Faster vaccine delivery would go a long way in easing the burden of the pandemic on the economy,” said Sri Thanabalasingam, senior economist at the Toronto-Dominion Bank, in a note. “The pace of deployment has picked up in recent weeks, but it must continue to do so in order to allow the economy to reopen more safely in the spring and summer. Supply chain issues or hesitation over vaccines could further complicate economic recovery. “
So far, the third wave has not led to rethinking the path to recovery in Canada. The median estimate by private sector economists is that real GDP will grow 5.4 percent this year, and several domestic banks have forecast growth of around 6 percent.
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