Canada’s economy shrank at the fastest pace since the Great Recession as the COVID-19 pandemic took hold, Statistics Canada said in a report issued Friday.
“Expressed at an annualized rate, real GDP fell 8.2 per cent in the first quarter. By comparison, real GDP in the United States fell 5 per cent,” the statistical agency said.
Some of that difference comes from Canada’s relatively higher dependence on the oil industry, which witnessed a historic collapse in prices in the early months of 2020.
But while Canada’s performance may be worse than that of the U.S., it’s in the “middle of the pack” compared to other developed countries, Bank of Montreal chief economist Doug Porter wrote in a client note. He outlined the change in GDP “from least bad to worst”:
- Japan (-3.4 per cent)
- U.S. (-5.0 per cent)
- U.K. (-7.7 per cent)
- Canada (-8.2 per cent)
- Germany (-8.6 per cent)
- Italy (-17.7 per cent)
- France (-21.4 per cent)
Watch: Goldman Sachs slashes forecasts for U.S. economy. Story continues below.
StatCan also surprised observers with a downbeat “flash estimate” of economic conditions for April, predicting that the data will show a drop of 11 per cent. April was the first full month of lockdown measures.
Economists expect the second quarter (the April-June period) will be the true bottom of the economic crisis. They forecast Canada’s economy to shrink by 40 per cent at an annualized rate during this period, before starting to recover in the third quarter.
Household spending in the first quarter dropped at the fastest pace in records going back to 1961, StatCan data showed. This is significant, because much of the first quarter had passed before the lockdowns began in mid-March. Global stock markets experienced a crash in the 30-per-cent range during this period, though markets have recovered some of those losses since.
Health-care sector shrinks dramatically
The health-care sector also saw a significant decline, dropping 11 per cent. The largest decline was in “ambulatory health care services” ― meaning services at doctors’ and dentists’ offices and at medical labs.
With doctors cancelling many consultations and elective procedures amid the COVID-19 pandemic, these services collapsed by 24.5 per cent, StatCan said.
Imports and exports fell at similar levels to each other (2.8 per cent and 3 per cent, respectively) and corporate earnings dropped.
If there was one piece of good news in the report, it’s that, with so little to spend money on these days, Canadians’ savings rate has soared. The average household is now squirreling away 6 per cent of their take-home pay, versus 3.6 per cent before the crisis.
And despite wages falling, Canadians’ disposable income actually grew by 0.4 per cent, thanks to higher incomes from rental properties and government transfers, including carbon tax rebates, StatCan said.
CIBC economist Royce Mendes suggested things will look different in the months to come.
“Overall, the economy has likely troughed at least for now, with businesses beginning to reopen,” he wrote in a client note Friday.
“Look for the economic data to begin showing signs of revival over the summer months, even if it only represents the low-hanging fruit of eased restrictions.”