Canada economy takes record plunge but outlook bright

Boutique shop owner Pat Phythian waits for customers in Ottawa as the government steps up efforts to pull Canada out of an economic slump. (AFP)
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Updated 30 August 2020

Canada economy takes record plunge but outlook bright

  • Canada’s economy contracted 11.5 percent, or at an annualized pace of 38.7 percent, in the three months ending June 30, the government statistical agency said

OTTAWA: Canada’s economy shrank at a record pace in the second quarter but by the end of the period showed signs of a rapid recovery from the pandemic trauma that forced businesses to close and put millions out of work.

At the same time, Prime Minister Justin Trudeau’s government ran up a Can$120 billion ($90 billion) budget deficit dolling out emergency aid to Canadians, compared to a shortfall of Can$85 million during the same period last year. The economy contracted 11.5 percent, or at an annualized pace of 38.7 percent, in the three months ending June 30, the government statistical agency said.

Declines were recorded across the board amid a nationwide lockdown including in consumer spending, business investment, trade and tourism — in line with analyst forecasts, following a 2.1 percent (8.2 percent annualized) contraction of Canada’s gross domestic product (GDP) in the first quarter. After steep declines at the height of the COVID-19 outbreak in April and May, however, GDP surged 6.5 percent in June.

And preliminary data for July forecast a 3 percent rise in the GDP. Economists said this suggests the worst is over for the Canadian economy.

“It was a quarter to forget for Canada’s economy,” commented CIBC analyst Royce Mendes in a research note.

The drop in GDP, he said, was of “a magnitude never before seen ... and was likely the worst performance since the Great Depression.”

But, he added, “things were looking up by the end of the second quarter” with “solid momentum” continuing into July.

Mendes also noted that Canadians’ disposable income actually grew in the period as emergency government support more than offset a drag from a jump in unemployment.

That drove the household savings rate up to 28 percent, from 7 percent, “potentially leaving some extra cash for spending in upcoming periods,” he said.

Derek Holt, head of Scotiabank Economics, noted that more than half of the 3 million Canadians who lost their jobs at the start of the pandemic, pushing up the unemployment rate to a peak of 13.9 percent in May, have since gone back to work as restrictions eased.

“Canada’s economy may be rebounding even faster than expected into Q3,” Holt said. 

“Canadian GDP is quickly recovering (from) the pandemic hit ... which cautions against the policy narrative that years of pain lie ahead.” But senior TD economist Brian DePratto warned: “Many sectors are going to continue struggling in the absence of a vaccine.”

“We may be through the worst of it, but it is still a long road to normal.”

The finance department said government revenues were down Can$32.0 billion, or 37.9 percent, in the second quarter, while expenses — including wage subsidies, business incentives and direct aid — climbed by Can$90.3 billion, or 116.5 percent.

Trudeau last week announced an extension of the emergency aid to the end of September, when he said he would seek parliament’s support for massive new social and environmental spending to pull Canada out of an economic slump.

If all three main opposition parties balk and vote against the proposals, however, Trudeau’s minority liberal government would fall, triggering snap elections.

According to Statistics Canada, household spending fell 13.1 percent in the second quarter due to substantial job losses and few opportunities to spend as most stores and restaurants were closed and travel and tourism was restricted by the closure of the border.

10 things you need to know on Tadawul today

Updated 7 min ago

10 things you need to know on Tadawul today

Here are a few things you need to know as Saudi stocks start trading on Wednesday.

1) Saudi Aramco customers are unaffected by the terrorist attack at a petroleum products distribution plant in the north of Jeddah, a company official said.

2) The Saudi Arabian Monetary Authority (SAMA) imposed penalties on 30 financial institutions due to violations of “responsible finance principles” for individuals.

3) Saudi Arabian Amiantit Co. signed two agreements to sell its stakes in Moroccan units, generating an accounting profit of SAR 14.16 million ($3.89 million).

4) Saudi Arabia moved beyond the concept of relative food security to achieve self-sufficiency in many sectors such as milk and poultry, according to Almarai Co.’s vice president of corporate affairs Faisal Marzouq Al-Fahadi.

5) Al-Khaleej Training and Education Co. signed a binding 30-day memorandum of understanding with the shareholders of Al-Raqi National Schools Co. to acquire 60% of the latter at SAR 12.82 million.

6) Saudi Reinsurance Company (Saudi Re) signed reinsurance contracts with Probitas Corporate Capital Ltd. with estimated gross written premiums of SAR 177 million.

7) Sadara Basic Services Co. said its parent company, Sadara Chemical Co. (Sadara), met the conditions specified by lenders under the Sadara project financing documents to achieve the project completion date.

8) Abdullah Al Othaim Markets Co. announced the opening of a new store in Al-Kharj, bringing the total number of branches across Saudi Arabia to 248.

9) Arabian Pipes Co. shareholders approved amending some of the company’s bylaws during the extraordinary general meeting.

10) Oil prices rose on Wednesday morning. Brent crude edged up 62 cents to $48.48/bbl, while WTI crude gained 52 cents to $45.43/bbl.

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