MNI REALITY CHECK: Canada GDP Gain May Be Last Before 2nd Wave

Canada's economy has another major hit coming from the second wave of Covid-19, bringing an end to gains rung up as firms adapted over the summer, executives told MNI.

GDP growth will moderate to 0.2% in October based on an economist consensus, from September's 0.8% expansion, in a Statistics Canada report due at 8:30 ET on Wednesday. Slowdowns will continue in November and December when more health restrictions were imposed in some provinces, hurting everything from industrial production to hospitality services, executives said.

Growth was already expected to nearly stall at around a 1% annualized pace in the fourth quarter, even before the country's largest province of Ontario this week announced a new 28-day lockdown including another major school closure. That boosts the odds of a negative print on GDP in December and more likely January.

Bank of Canada Governor Tiff Macklem said Dec. 15 the economy may shrink in the first quarter of 2021 on the tightening restrictions. That would add to the tough rebound period that got a lift with the third quarter gain of 41% annualized on pent-up demand.

Jean Simard, President, Aluminum Association of Canada:

October was strongest among the six previous months, on the auto industry rebound and the removal of a U.S. tariff on unwrought aluminum.

"Since July, while our production and sales in 2020 basically have gone down significantly, our production and sales of value-added products, products that used in the automobile and aerospace industry, have gone up significantly," Simard said.

Canada's industry exports 90% of production to the U.S., so solid demand there has helped, he said, while in the longer term competition from the Middle East and China is strengthening.

"China has been adding new capacity that is twice and sometimes five times our biggest smelters at a much lower cost," and producers in Canada are working to "develop as much agility as possible in our operations to strategically respond to market share." Electric vehicles are a potentially important new market, he said.

The second Covid wave is a problem because it seems to be much bigger than the first one, and it's hard to say that how long it will last. "My concern is not the smelters, it's downstream: how the economies of North America make their way through the second wave and how it's going to affect our markets like aerospace, which is going to take so much time to recover."

Timothy Egan, President, Canadian Gas Association:

"We are cautiously optimistic about the market conditions for the winter season, but we are broadly worrying about the state of the economy and the need to have the economy come on full steam as soon as possible," Egan said. "If we don't have a strong robust economy, that means our customers would not be able to operate, and therefore, there would not be as much of need for our products"

"We are well prepared to deal with the second wave and as an industry, we are able to meet our customer's needs, but if the economy is not strong, that would impact us."

Norm Beal, Food and Beverage Ontario's CEO:

"In October, the demand was still there, but many processors wanted to reduce their capacity because they have to change the configuration of their operations in order to address health and safety issues due to the pandemic," he said.

Investing in safe workplaces is driving up production costs, while forecasting demand is now a week-to-week problem because of changing health rules, Beal said.

International travel rules have also made it difficult to install and service equipment that is often purchased from outside Canada, he said. Most firms have tried holding off price increases but that's becoming more difficult as the pandemic goes on.

"There is certainly a potential for increasing prices in the food processing industry, as everyone in the value chain tries to recover some of the increased costs," he said. "There is going to be a real movement in Ontario to have many of our manufacturers, like in auto parts, to shift their thinking around producing some of those advanced technologies.