The Conference Board of Canada’s economists Kiefer Van Mulligen and Liam Daly offer the following insights on Canada’s first quarter GDP:
“Following two months of solid gains, real GDP rose in March, posting a monthly gain of 1.1 per cent. Overall, the economy forged ahead by 1.4 per cent in the first quarter of the year, supported by strong household and government spending, residential construction and growth in exports. The growth in March is a testament to the resilience of the Canadian economy to perform well when pandemic measures are eased. Yet tightened measures, brought on by the third wave will dampen second quarter growth. Statistics Canada’s flash estimate suggests that real GDP dropped 0.8 per cent in April.”
GDP by industry:
- The first quarter of 2021 was marked by volatility among several service-producing industries as many regions of Canada saw restrictions eased as the second wave of the pandemic receded.
- Goods-producing industries showed greater stability with strength in construction and mining.
- The third wave is likely to drive a similar pattern in the second quarter of the year as restrictions that were reintroduced in April are gradually eased in the months of May and June.
- Preliminary estimates by Statistics Canada point to a 0.8 per cent decline in real GDP in April as retail and hospitality sectors were once again shuttered in several parts of the country.
- All goods-producing industries posted growth in March except for the utilities sector.
- Relative growth was most pronounced in the construction industry, on the back of strong residential activity. This caps off a strong first quarter of the year for construction in which output expanded by 3.8 per cent.
- High commodity prices and demand for metals drove impressive growth in the mining sector, which stood out as the best-performing industry in the first quarter, growing by 5.5 per cent.
- Despite a slow start to the year, the reopening of the retail sector, notably in Quebec and Ontario, fuelled a rebound in February that continued into March.
- Retail and wholesale trade grew by 3.7 and 1.8 per cent respectively in March, offsetting losses at the beginning of the year and allowing both industries to post growth for the first quarter.
- The month of March coincided with a trough between the second and third waves of the pandemic. Reflecting this was growth of the high-contact service industries that have been shown to be most sensitive to the prevailing pandemic conditions.
- The accommodation and food services industry grew by 5.0 per cent in March, adding a second consecutive month of growth.
- Similarly, the arts entertainment and recreation industry built on the previous month’s growth as output increased by 2.1 per cent. However, the third wave has likely ushered in a weakening in the performance of these industries in April.
- In the first quarter of 2021, output in arts entertainment and recreation industry remained 47 per cent below the first quarter of 2020, while output in accommodation and food services is 28 per cent below the same quarter of last year.
- Output growth in health, education and public administration in March contributed to an overall expansion of public services in the first quarter of 2.1 per cent.
Income and expenditure:
- Expenditure-based GDP increased by 1.4 per cent in the first quarter, putting real GDP just over its pre-pandemic level during the first quarter of 2020.
- Canada’s hot housing market continued to make its mark. Expenditures on residential structures increased by 9.4 per cent in the first quarter.
- Year-over-year, residential investment grew by 26.5 per cent.
- Investment in non-residential structures edged up by 0.6 per cent over the quarter.
- Yet, machinery and equipment expenditures fell by 2.7 per cent. This decline was driven mainly by aircraft and other transportation equipment manufacturers cutting capital expenses to nearly zero in the quarter.
- Consumption of goods has surpassed its pre-pandemic level and increased by 1.1 per cent in the first quarter.
- Expenditures on durable goods showed the most strength in the first quarter (up by 1.4 per cent). Year-over-year, outlays on durable goods increased by 22.3 per cent.
- Consumption of services sat at only 90 per cent of its level in the first quarter of 2020, growing by a modest 0.2 per cent quarter-over-quarter. As restrictions are lifted, we expect that services will regain this lost ground.
- Both export and import expenditures increased over the first quarter (up by 1.5 per cent and 1.1 per cent).
- The household savings rate increased to 13.1 per cent in the first quarter following two quarterly declines. Ongoing government support coupled with limited opportunities for consumption brought on by pandemic restrictions likely led to slightly more conservative spending.
- As Canada’s labour market continued to be disrupted by ongoing pandemic uncertainty, government transfers to households increased by 1.8 per cent over the first quarter. Income from employment insurance benefits increased by 7.8 per cent.