Quick take

November GDP: A milestone reached but the storm is building

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  • The Canadian economy grew by 0.6 per cent in November, building on a strong performance in October. The result pushed real GDP higher than the pre-pandemic level of February 2020 for the first time. The results were an improvement on Statistics Canada’s preliminary estimate of 0.3 per cent.
  • The preliminary estimate for December is for GDP to remain broadly unchanged. If correct, this would mean that the Canadian economy grew by 1.6 per cent in the fourth quarter and 4.9 per cent in 2021.
  • Output in the goods sector rose by 0.5 per cent, propelled by the manufacturing industry, which expanded by 1.4 per cent. The manufacturing gains were shared across durable and non-durable goods with transport equipment and petrol and coal manufacturing performing well. The resurgence continued in the construction sector, which experienced minimal growth in the second and third quarters of 2021. Meanwhile, GDP in the agriculture, forestry, fishing, and hunting industry grew by 5.4 per cent, buoyed by strong crop production.
  • The services sector grew by 0.6 per cent. Growth was led by gains in wholesale trade (+2.8 per cent) and high-contact services. Output in the accommodation and food service industry rose by 3.4 per cent, fueled by growth in accommodation services. In the arts, entertainment, and recreation industry, GDP rose by 5.4 per cent.

Key insights:

  • November brings positive news for several of the worst-affected industries, such as accommodation and food services. Yet dark clouds loom on the horizon. The reintroduction of restrictions across Canada will weaken output and employment in several high-contact services. To make matters worse, the latest wave comes after the government tightened financial support measures for businesses and workers. The timing of the latest wave is also a setback for many businesses who hoped for a busy holiday season, unencumbered by restrictions.
  • Yet there is reason to be optimistic. The impact of the latest wave may be less protracted than those that have come before. Public health experts have signalled cautious optimism that the current pandemic wave may have peaked nationally. Although the situation remains critical in some regions, governments face restriction-weary populations and growing discontent about the heavy-handedness of some public health measures. Reflecting this mood, provinces will likely move quickly in removing restrictions, limiting the economic setback.
  • Inflation presents a challenge to a range of Canadian industries. For firms along the supply chain, whether in manufacturing, wholesale, or retail trade, profit margins are being squeezed by rising input costs. But it’s not just the businesses that are experiencing the pain. Consumers are also facing the pinch as inflation eats into Canadians’ purchasing power. While retail sales in 2021 were strong, sustained inflation threatens to dampen consumer spending, a key driver of our near-term GDP growth forecast. Given the risks to firms and households, the Bank of Canada faces the unenviable task of reducing inflation while not stifling economic recovery.

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Liam Daly

Liam Daly

Economist

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