Now for the hard part

Statistics Canada reported this morning that Canada's GDP rose 3.0 percent in July, down from a 6.5 percent gain in June.  The increase was broad-based, with all twenty sectors of the economy posting gains, but GDP is still 6 percent below its February peak.

Several sectors have, in fact, moved above their pre-pandemic level, including agriculture, utilities and finance. The fastest-growing sectors in July were those that were hit hardest by the pandemic lockdowns. Food services and drinking places (i.e. restaurants and bars) posted a 17.6 percent gain, while accommodation services grew 27 percent, but both sectors are rebounding from a very low base and remain below pre-pandemic levels. The important manufacturing sector saw a gain of 5.9 percent in July, down from 15 percent in June, but is still 6 percent below its February peak. 

Unsurprisingly, the rebound from the worst effects of the pandemic is slowing, a trend that is likely to continue. StatsCan's preliminary estimate for August's GDP points to a further 1 percent increase. September may see a similar result, but the emergence of the feared second wave of COVID in recent weeks has prompted a return to tighter restrictions, especially in the two most populous Provinces, Ontario and Quebec. 

Governments are anxious to avoid a return to the kind of lockdowns seen in March and April. Even if these can be avoided, however, growth prospects for October and indeed the entire fourth quarter look distinctly weak. Sectors that were hard hit in the first wave of COVID, especially the hospitality and travel sectors, are warning of outright disaster with the approach of the colder season. 

If there is any good news to be found this week, it is the fact that an extended COVID relief package is rapidly making its way through Parliament. Expanded access to Employment Insurance and provision of new emergency benefits for those not covered by EI will bolster household finances and consumer confidence, providing a boost to the entire economy. The contrast with the situation in the US, where a much-needed second stimulus package has been tied up in Congress for weeks, could scarcely be more stark.