Friday, July 31, 2020 - 10:35

MNI POLICY: Canada May GDP +4.5%, Flash Q2 is Record -12%

OTTAWA (MNI) - Canada's GDP surged 4.5% in May as the economy re-opened after the Covid-19 lockdown, but the government gave flash estimates Friday confirming that even with a similar gain for June the second quarter will be by far the worst in modern records.

The monthly gain was slightly better than the MNI economist median of 3.9%, but followed declines of 7.5% in March and 11.7% in April. Statistics Canada's report Friday also gave "flash" estimates that GDP grew about 5% in June, and declined 12% in the second quarter from the first. That quarterly plunge is on par with some private forecasts showing a Q2 annualized decline topping 40% that rivals the Great Depression.

With that shock and some measures of unemployment reaching around 20% the Bank of Canada has signaled it will keep its 0.25% policy rate into 2023, and the government is seeking to shift workers off relief checks that have pushed the deficit to a record CAD343 billion. Assuming official figures for second quarter GDP, due Aug. 28, matches the flash estimate, even the solid rebound expected in the third quarter will leave output well below pre-pandemic levels even without a second wave of coronavirus.

GDP is still 15% below pre-pandemic levels even with the May increase, Statistics Canada's report said.

The composition of the May gains widely tracked the patterns of the shutdown and re-opening.

Construction rose 18% led by a return to large worksites in Ontario and Quebec as social distance rules were relaxed. Retail sales jumped 16%, the highest in records back to 1961, led by a 69% jump at auto and parts dealers. Excluding autos, retail sales rose 11% on the month.

Manufacturing rose 7.4% following a 22% drop in April, as automobile factories began reopening from a near total shutdown earlier in the year.


The heavily damaged restaurant and bar industry grew 35% on a shift to take-out menus and the return of some patio and outdoor dining options.

Overall GDP gains were broad based with 17 out of 20 industrial sectors growing in May.

Separate reports showed building permits rose 6.2% in June to bring them close to pre-pandemic levels, while industrial prices rose 0.4% to leave them 3.1% lower than the same month a year ago. Raw materials prices rose 7.5% in June and were down 14% from a year ago led by energy. Excluding energy, materials prices were little changed on a 12-month basis.

[TOPICS: M$C$$$]

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