Canadian Real GDP (July 2020)

Canada's economy continues to improve in July 

• The Canadian economy continued its upward climb in July as GDP advanced 3.0% month-on-month, in line with Statistics Canada's initial nowcast and consensus expectations. July's gain was historically elevated, but the "rebound" phase appears to be coming to an end. Indeed, along with July GDP, Statistics Canada provided an early look at August GDP, which showed a smaller 1.0% gain.
• All 20 industries saw advances in July. Notably, output in agriculture, utilities, finance and insurance and real estate rental and leasing sectors exceeded pre-pandemic (February) levels in July.
• On the whole, goods-producing industries grew 3.2% m/m, led by the manufacturing industry, which rose 5.9% for the month. Still, the level of activity was 6% below what it was in February. Both durable (+5.7%) and non-durable manufacturing (+6.2%) output was up in July. Transportation equipment manufacturing was the main sector driving growth in the manufacturing industry, growing by 16.6% in July. Behind this increase was solid growth in motor vehicle (+10.5%) and motor vehicle parts manufacturing (+38.6%) where businesses continued to increase production to meet consumer demand.  
• From a services perspective, the overall industry grew 3.0% m/m in July. Accommodation and food services rose 20.1%, the third consecutive month where growth surpassed the 20% mark. Food services and drinking places increased 17.6% on the month as restaurants, pubs, bars continued to reopen in July. Like its counterpart, accommodation services grew 27.6% owing to more domestic travel induced by international travel restrictions. Real estate and rental and leasing rose 1.9% in July. Meanwhile, blistering housing market activity boosted real estate agents and brokers output by 30.6% on the month. On the flipside, growth in the retail sector slow to 0.4%, following two straight months of growth above 15%. 

Key Implications

• The healing process continued in July as the Canadian economy recovered more of the activity that was lost during the March and April lockdown period. Nonetheless, GDP remained 6% below the February level in July.   
• Ontario's move to stage three of reopening almost certainly contributed to the strong growth seen in areas most impacted by the pandemic (i.e. accommodation and food services). Despite these extraordinary numbers, the level of activity is still 33% lower than what it was in February in the accommodation and food services sector. Indeed, output is still well off pre-pandemic levels for other high-touch industries such as arts, entertainment and recreation, and transportation and warehousing services. Meanwhile, areas less impacted by the pandemic have seen activity move past pre-pandemic levels.  
• Slowing and uneven growth are indications that the Canadian economy is transitioning from the rebound phase to a more challenging stage of the recovery. From here on in, the journey to "normal" could see temporary stalls and bouts of turbulence. Fiscal and monetary policy are working to lessen the risks, but the economy is at the mercy of the health crisis. Alarming trajectories in new COVID-19 cases in provinces like Quebec and Ontario have already caused governments to rollback reopening measures. Even without restrictions, consumers and businesses may rein in spending activity in response to rising caseloads. The second wave is now upon us, and the course of the recovery will depend on our success in containing it.  

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