The long road to economic recovery for Canada started in May as production increased after two months of historic declines.
According to Statistics Canada’s industry GDP estimates, the economy rose by a stronger-than-expected 4.5% from April as provinces moved to gradually unwind emergency measures. Growth was widespread among sectors, with a 24% increase in accommodations and foodservices leading the way, albeit still down more than half from February. Strong gains were also observed in retail trade, other personal services and construction.
Also encouraging was a preliminary June estimate for another 5% expansion. Nevertheless, the hole remains deep, as June output is still 10% below pre-pandemic levels. On a quarterly basis, Canada is set for a historic 12% contraction during the second quarter.
The initially sharp upturn during the restart phase is expected to give way to a modest and uneven recovery phase. Output is not expected to return to pre-pandemic levels until 2022. Firms will grapple with lower demand than observed prior to the pandemic amid higher levels of unemployment, global economic weakness, ongoing travel restrictions and constrained capacity in some industries due to physical distancing.
The Canadian Federation of Independent Business’ (CFIB) latest business barometer reading for July pointed to a slight improvement in business confidence, but short-term expectations remain subdued. B.C.’s barometer reading rose 1.4 points from June to 55 points. While the index is up sharply from a low of 29 points in March, it is well below the five-year average of about 61 points. Short-term expectations are considerably weaker.
Caution is also warranted as many financially weaker businesses have already closed permanently, and firms may have a different view of what constitutes a better future performance than they did before the pandemic. Other CFIB survey data also suggests ongoing weakness for many businesses. At the end of June, only 57% of B.C. businesses were fully opened, compared with 58% nationally; 25% had sales at or above normal levels, and 34% had staffing at or above normal.
Payroll data is by now dated, but B.C. posted a surprise decline in May, despite higher Labour Force Survey employment. Non-farm payroll counts in B.C. contracted by 2.9% (57,122 jobs) from April to 1.897 million persons in May.•
Bryan Yu is deputy chief economist at Central 1 Credit Union.
