The stronger-than-expected 4.5% m/m rise in GDP in May provides further evidence that the initial rebound from the lockdowns was strong. We expect the pace of recovery to slow over the rest of the summer, however, and for GDP to remain below its pre-virus level until late 2021.
Rise in May to be followed by stronger June
- The stronger-than-expected 4.5% m/m rise in GDP in May provides further evidence that the initial rebound from the lockdowns was strong. We expect the pace of recovery to slow over the rest of the summer, however, and for GDP to remain below its pre-virus level until late 2021.
- The 4.5% m/m rise was stronger than the consensus estimate of a 3% gain, albeit a touch weaker than our own estimate for a 5% increase. Despite the rise, GDP remained 15% below the February pre-virus level.
- GDP rose in almost every sector, with a 2.9% m/m drop in arts, entertainment and recreation GDP the main exception. Construction, retail and accommodation & food services saw strong m/m gains of between 17% and 24% as the first restrictions were lifted. Education GDP and healthcare GDP both rose as well, albeit more modestly, as some schools opened and non-emergency procedures were permitted. Mining, quarrying and oil & gas extraction GDP rose by 2.4%, which was primarily due to higher metal ore mining, as activity in the oil sector continued to decline.
- The further fall in May means that GDP in the arts, entertainment and recreation sector was 57% below its February pre-virus level. Despite the strong rise in May, accommodation & food services GDP remained similarly depressed. By contrast, the various professional service sectors have fared comparatively well, although even professional services GDP remains 10% below its pre-virus level. (See Chart 1.)
- Stats Can said in the press release that its preliminary data point to only a marginally stronger rise in GDP in June, of 5.0% m/m. However, as the preliminary data a month ago only pointed to 3.0% m/m rise for May, we are happy sticking to our estimate that GDP rose by a stronger 7.0% m/m last month. That would still result in a quarterly contraction of 40% annualised in the second quarter, but would at least be better than the 47% drop expected by the Bank of Canada. While we expect growth to jump to near 40% annualised in the third quarter, by ed of the year we still expect GDP to remain 3.8% below its pre-virus level. (See our Canada Economics Outlook, “GDP to remain below pre-virus trend for years”, 9th July.)
Chart 1: GDP (February to May, %)
Table 1: Real GDP (% m/m)
Goods Producing Sectors
Ag & Forestry
Mining & Oil
Stephen Brown, Senior Canada Economist, email@example.com