Economy on the road to recovery: CBOC
It may not be there yet, but Canada’s economy is taking significant strides to returning to pre-pandemic levels.
The latest statement from the chief economist of the Conference Board of Canada reveals a number of important insights:
- Economic growth in May was stronger than Statistics Canada’s preliminary estimate of 3 percent. The flash estimate for June has growth up another 5 percent—suggesting that the second quarter of 2020 will be down by 12 percent—in line with the Conference Board’s Summer National Forecast completed mid-June.
- Construction activity surged in May as COVID-related restrictions were eased, especially in Ontario and Quebec. Both residential and non-residential activity picked up strongly, contributing to a quarter of the overall gain in GDP.
- Retail trade also picked up sharply, posting a 16-percent gain in May. The gains were strong across all segments, following steep declines in the prior two months. While May’s retail activity was 16.6 percent below February’s level, Statistics Canada’s flash estimate suggests that retail sales could fully recover (back to February levels) in June.
- Disappointingly, aerospace manufacturing continued to regress in May, falling by 5.1 percent. Air transportation services picked up modestly, but activity remained essentially shut down with the sector operating at less than 4 percent of pre-COVID activity. Activity is unlikely to return to normal until a vaccine or treatment for COVID-19 is discovered and available globally.
- Also affected by the dearth in tourism, accommodation services activity fell for the fourth month in a row in May. Food and beverage services posted a 35 percent gain. Still, the accommodation sector is operating at roughly one-third of pre-COVID levels while food and beverage services are operating at less than half.
- Except for aerospace, real GDP in the manufacturing sector grew 7.4 percent in May. The gains within manufacturing were driven by transportation equipment manufacturing (up 30.5 per cent) as most automotive plants gradually reopened during May.
May’s real GDP data and other recent indicators suggest that Canada’s economy has emerged strongly from the pandemic shutdown. While the recovery will continue, the Conference Board says it expect a bumpy ride in coming months. Operating with the ongoing risks associated with the novel coronavirus will be challenging for many businesses, and further localized shutdowns are likely. Exporters and manufacturers will also feel the effects of the recent surge in COVID-19 cases in the United States.
“Economic activity bounced back in May as pandemic restrictions started to be eased but there’s a long road ahead before we fully recover,” said Conference Board chief economist Pedro Antunes. “Construction and retail contributed most to the 4.5 percent growth in May, but real GDP remained at 85 percent of February’s pre-shutdown levels.”