Was that the trough?

Statistics Canada reported this morning that Canada's real GDP declined by 11.6 percent in April. Combined with the 7.5 percent fall previously reported for March, this means that in May real GDP stood a remarkable 18.2 percent below its February (pre-pandemic) level.

All twenty sectors in the StatsCan data reported declines in April, but there were wide variations. Manufacturing output fell 22.5 percent, largely reflecting shutdowns in non-essential segments, and retail sales fell 22.9 percent as a rise in online shopping failed to offset plummeting sales in many segments -- clothing sales, for example, fell by two-thirds in the month of April. The transportation sector posted a 23 percent decline in the month, propelled by a stunning 93 percent fall in the airline sector.  Equally predictably, accommodation and food services output fell 42 percent in the month, to stand 64 percent below its February level.

Sectors posting much more favourable results included utilities, as well as businesses that adapt readily to working from home. The output of the utilities sector fell by only 1.8 percent in April, while output of the financial services sector fell 1.0 percent, with the decline concentrated in the insurance segment.

StatsCan also took the unusual step of providing an early hint of where it expects GDP to go for the month of May.  It sees a rebound of 3 percent for the month, as provincial economies progressively but unevenly moved out of lockdown.  The unwinding of restrictions has gathered pace through June, so a significantly stronger rebound is all but baked in for the month just ending*.  This may have been Canada's steepest recession, but it also seems destined to be the shortest on record, with only two months of actual declines in aggregate output.

Looking further ahead, further GDP gains can be expected through the rest of the summer and into the fall, always assuming that there is no severe second wave of coronavirus.  However, the climb out of the abyss will be much more prolonged than the plunge into it, and even aside from the risk of the dreaded second wave, there is one major uncertainty.  How much of the decline in activity has been due to government steps to put the economy into a temporary freeze, and how much will prove to represent a more permanent setback?  Just today we have seen Air Canada announce a significant pruning of its domestic network, with the threat of more to come.  Transportation and accommodation, which as related above have seen some of the sharpest declines in the last few months, may well take many years to return to their pre-pandemic levels.

*Anecdotally, a visit earlier today to a nearby BestBuy store, just reopened after a three-month hiatus,  revealed long lines to get into not only that store, but several others in the same plaza, including a liquor store and a WalMart.