Ottawa, July 31, 2020—The Conference Board of Canada’s Chief Economist Pedro Antunes offers the following insights on the latest Gross Domestic Product (GDP) data:
“Economic activity bounced back in May as pandemic restrictions started to be eased but there’s a long road ahead before we fully recover. Construction and retail contributed most to the 4.5 per cent growth in May but real GDP remained at 85 per cent of February’s pre-shutdown levels.”
- Economic growth in May was stronger than Statistics Canada’s preliminary estimate of 3 per cent. The flash estimate for June has growth up another 5 per cent—suggesting that the second quarter of 2020 will be down by 12 per cent—right in line with our Summer National Forecast completed mid-June.
- Construction activity surged ahead 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 per cent 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 per cent below February’s level, Statistics Canada’s flash estimate suggests that retail sales could fully recover (back to February levels) in June. This is likely a reflection of frustrated consumers anxious to eat away at pent up demand.
- On a more sour note, aerospace manufacturing continued to regress in May, falling by 5.1 per cent. Air transportation services picked up modestly, but activity remained essentially shut down with the sector operating at less than 4 per cent of pre-COVID activity. These and other sectors related to travel and tourism will struggle to get through a long, drawn out recovery. Activity is unlikely to return to normal until a vaccine or treatment for COVID-19 is discovered and available globally—a situation we assume won’t happen until late next year.
- 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 per cent 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 per cent 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, we 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.