Quick Take

Record-setting second quarter decline

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The Conference Board of Canada’s Chief Economist Pedro Antunes offers the following insights on the latest Gross Domestic Product (GDP) data:

Economic activity plummeted by a record 11.5 per cent in the second quarter of 2020 following a 2.1 per cent decline in the first quarter. The second quarter decline is closely aligned with the call we made for a 12.1 per cent decline in our June forecast. Now that we’ve confirmed how deep the recession has been, the big question remaining is how long the recovery will take. Given the continued health risks associated with COVID-19, we expect a bumpy ride for Canada’s economy over the next year until a treatment or vaccine is widely available.

  • The shutdown of Canada’s economy over the first half of 2020 has been similar to the experience of many other economies in what has been a very deep and synchronized global recession.
  • All broad categories of spending dropped sharply in the second quarter. Real household spending fell 13.1 per cent, private investment dropped 16.2 per cent, exports were down 18.4 per cent while imports dropped even more (–22.6 per cent). The public sector’s contribution to economic activity also fell by 2.7 per cent in the quarter, owing to a reduction in hours worked.
  • In current dollars, nominal income (GDP) was down by $346 billion (at annual rates) in comparison to the fourth quarter of last year.
  • Spending by households fell across all major categories but the decline in spending on food, beverage and accommodation services, transportation services, and new vehicles was especially harsh.
  • Income support measures to households more than offset losses to labour income, boosting disposable income by 10.8 per cent in the quarter. Combined with the decline in spending, the aggregate household savings rate shot up to 28.2 per cent. The savings rate averaged just 3 per cent in 2019.
  • While this will be Canada’s deepest modern-day recession, it has also been the shortest. On a monthly basis, economic activity plummeted in March and April but the recovery followed in May and continued into June.
  • The recovery was widespread across most industries as the economy reopens. The manufacturing sector posted a solid 14.6 per cent gain with many firms reporting higher capacity use. Still, the sector operated 12 per cent below February levels in June.
  • A surge in household spending that brought spending on retail goods and services to above pre-COVID-19 levels contributed strongly to the pickup in economic activity in June. The surge is due to the strong income support programs put in place at the federal and provincial levels coupled with pent-up demand. Non-essential spending on clothing, sporting goods, hobbies, furniture, and new vehicles was up sharply.
  • However, the Conference Board of Canada’s measure of consumer confidence slipped in August as households are concerned about future income and employment prospects, especially as CERB benefits are expiring.
  • Statistics Canada also provided a preliminary estimate for July that suggests economic activity was up another 3 per cent in that month. That leaves the economy still operating 6 per cent below February levels.

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Pedro Antunes

Pedro Antunes

Chief Economist

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