Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.
Canada's GDP fell a historic annualized 39% in the second quarter amid the health lockdown, though month-to-month figures suggest momentum on the journey back to pre-pandemic levels of output as the economy reopened.
The quarterly decline was the steepest in records to 1961 and rivals any back to the Great Depression. Weakness was spread among most major components including investment, exports and household spending, with families pocketing relief checks to drive the savings rate to 28% from 7.6%.
Output grew 6.5% in June and a flash estimate put the July gain at about 3%, suggesting strong momentum in the third quarter. That reflects a one-time burst from re-opening that analysts fear won't be sustained with the risk of a second wave and weak demand from the U.S., the buyer of 75% of Canada's exports. "While May and June's gains offset some of the March and April declines, economic activity was about 9% below February's pre-pandemic level," Statistics Canada said Friday from Ottawa.
Household spending dropped 43% as stores closed, business investment by 57% and imports by 64%.
Inventories sank CAD38 billion as supply chains were disrupted and it was harder to import goods. Auto sales plunged as the pandemic kept people away from test drives. Exports plummeted 56% along with a similar drop in crude oil prices amid a global supply glut.
While there aren't comparable figures for the 1930s, rough data from back then suggest output may never have fallen so much over three months. What's different now is there is little sign of a deflationary spiral, with a federal deficit of at least 15% of GDP propping up consumer demand, and unemployment peaking below 15% as opposed to around 25% in the 1930s.
Prices did decline 1.2% in the second quarter in StatsCan's GDP implicit price index, though BOC Governor Tiff Macklem said Thursday at Jackson Hole inflation that "many people don't feel like inflation is falling when food inflation has been averaging almost 3 percent" and that he will take that into account.
The potential for a double-dip recession lingers and managing such weakness could force Justin Trudeau's Liberal government into a snap election. Fitch yesterday warned again that a failure to stabilize deficits and debt in the medium term could lead to another ratings cut after it stripped Canada's triple-A rating in June.
Why MNI
MNI is the leading provider
of intelligence and analysis on the Global Fixed Income, Foreign Exchange and Energy markets. We use an innovative combination of real-time analysis, deep fundamental research and journalism to provide unique and actionable insights for traders and investors. Our "All signal, no noise" approach drives an intelligence service that is succinct and timely, which is highly regarded by our time constrained client base.Our Head Office is in London with offices in Chicago, Washington and Beijing, as well as an on the ground presence in other major financial centres across the world.