Canadian Real GDP (February 2021)

Canadian economy takes another step forward in February

• The Canadian economy grew 0.4% on a month-on-month (m/m) basis in February, a touch below consensus estimates (+0.5%). This left economic output 2% below its pre-pandemic (February 2020) level. Statistics Canada also produced an advance GDP estimate for March, which showed the economy growing at 0.9% for the month. 
• By industry, growth was concentrated in the services sector (+0.6%). The retail trade industry drove gains, rising 4.5% in February as provinces lifted some lockdown measures. Accommodation and food services also benefitted from eased restrictions with output increasing 3.5% in February. On the flipside, transportation (-2.0%) and wholesale trade (-1.0%) declined in February. 
• Meanwhile, goods-producing industries contracted for the first time since April in February, declining 0.2%. Weakness was concentrated in mining, quarrying, and oil and gas (-2.8%) as well as manufacturing (-0.9%), with the latter impacted by the global semiconductor shortage. Conversely, construction rose 2.0% as residential construction increase 4.7% on the back of strong activity in single-family home construction and home alterations and improvements.      

Key Implications

• The string of solid GDP reports continued in February, with the economy now not far off from pre-pandemic levels of output. Including the preliminary March estimate, GDP is 1% off the pre-recession peak in February 2020.
• But February, and even March, seem like a long time ago don't they? Ontario, Quebec, and Alberta were easing restrictions then, but now, more stringent measures have been adopted as Canada confronts the third wave of the virus. While consumers and businesses have adapted better to pandemic conditions, new restrictions are likely to weigh on the economic recovery in the near term.
• The ramp up in vaccine distribution should lead to a recession of the virus. And as a greater share of the population is inoculated, provinces will likely be more inclined to gradually relax public health guidelines. Still, this timeline is uncertain. What’s more certain is that the next phase of the recovery will require vaccines to gain the upper hand on the virus. Fingers crossed this happens sooner rather than later.              

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