Quick Take

Weak performance in December caps off slow fourth quarter

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The Conference Board of Canada economist Liam Daly offers the following insights on the latest Gross Domestic Product (GDP) data:

Real GDP posted a 2.3 per cent gain in the fourth quarter of last year, leaving overall economic activity down 5.4 per cent in 2020—by far Canada’s steepest recession in modern times. While the economy recovered over the second half of 2020, economic activity has again slowed in recent months.

Adds Liam Daly:

As expected, tightening restrictions sapped energy from the economic recovery in December with real GDP posting minimal growth of 0.1 per cent. Rising COVID-19 cases have forced governments to reimpose economic restrictions suggesting that economic activity will be off to a weak start to 2021.

Fourth Quarter Expenditures

  • Household consumption fell by 0.1 per cent in the fourth quarter, a contraction fueled by a 4.7 per cent decrease in expenditures on semi-durable goods, of which clothing and footwear are a major component.
  • Expenditure on durable goods also fell slightly while services expenditures rose by 0.2 per cent. The data indicate that an increase in spending on medical and health-related services made a significant contribution to this increase.
  • Investment expenditures increased in the fourth quarter of 2020 by 2.3 per cent. Among businesses, investment in residential structures rose by 4.3 per cent while investment in machinery and equipment rose by 7.0 per cent. As demand for offices and retail space remained weak, investment in non-residential structures declined by 2.7 per cent.
  • Canada’s trade of international goods and services continued to recover with total exports rising by 1.2 per cent in the fourth quarter. Growth in the export of industrial inputs underpinned this rise.
  • In contrast, exports of several transport-related goods including motor vehicles, aircraft and transportation equipment decreased significantly, likely due to decreased demand in the United States and Europe. Imports grew by 2.6 per cent, pulling Canada’s trade balance into negative territory.
  • Although slowed by a resurgence of COVID-19, the labour market recovery allowed employee compensation to grow by 2.5 per cent while the transition of workers from employment subsidy programs permitted transfers of employment insurance benefits fell by 10 per cent. Overall primary household income grew by 2.2 percent from the previous quarter.
  • The household savings rate in the fourth quarter was 12.7 per cent, which, after peaking at 27.8 per cent in the second quarter of 2020, remains significantly higher than the 2.0 per cent recorded in the final quarter of 2019. This indicates that uncertainty about the health of the economy and economic restrictions continue to weigh heavily on the spending and saving behavior of households.

December’s GDP By Industry Signals Weak Start To 2021

  • Among the goods-producing industries, output grew by 0.6 per cent, roughly half as much as November. After expanding by 1.5 percent last month, GDP in the manufacturing sector fell by 1.1 per cent. This was underpinned by declines in both durable and non-durable manufacturing segments.
  • Despite this limited progress in December, strength in the previous two months allowed manufacturing output to post 1.4 per cent growth in the fourth quarter of 2020.
  • Elsewhere, the construction, mining and agricultural industries all posted above 1.0 per cent growth in December. In the final quarter of 2020, the agriculture and mining sectors grew by 5.1 and 6.1 per cent, respectively, the largest increases among all industries.
  • Among the service industries, growth continues to be experienced only by those industries able to adapt to COVID-19 restrictions.
  • Retail sales fell by 3.4 per cent in December, the largest decline since April 2020. This fall in activity is reflected by a decline in the output of both the retail (-3.3 per cent) and wholesale trade (-1.2 per cent) sectors.
  • GDP in the retail industry in December was less than 0.5 per cent from pre-pandemic levels. However, with additional retail closures brought in at the end of December in some provinces, it is likely we will see a further decline in this sector next month.
  • The finance and insurance industry which has seen solid growth over previous months also stalled in December, as output fell by 0.1 per cent, indicating that the economic slowdown brought about by the second wave may be starting to touch industries that have been fairly insulated by remote work practices.
  • The accommodation and food services industry suffered a fourth consecutive month of decline as output dropped by 6.8 per cent, bringing levels down to almost 40 per cent below what they were last February. This caps off a disappointing fourth quarter in which restrictions have pushed output in this industry down by 5.6 per cent.
  • Similarly, in the arts entertainment and recreation industry, monthly output inched down by 2.1 per cent, widening the shortfall on pre-pandemic levels to over 50 per cent.
  • The public sector saw a small increase in December as output rose by 0.6 per cent. The transportation and warehousing sectors, which had been making encouraging progress over the previous months matched November’s growth as output increased by 0.7 per cent.
  • As measures remain in place moving into the year ahead, it is likely that next month’s economic performance will also be weak. Nonetheless, Statistics Canada estimates growth of 0.5 per cent this past January.

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Liam Daly

Liam Daly


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