What comes after V?

Whether you prefer to look at the quarterly change or the annualized rate, the rebound in Canada's real GDP in the third quarter was impressive -- V-shaped, you might say. The quarterly change, as reported by Statistics Canada this morning, was 8.9 percent, which annualizes to a rate of 40.6 percent. That comes after two quarters of decline, with Q2 particularly weak, and still leaves real GDP 5.3 percent below its pre-pandemic peak, which was reached, if you are using quarterly data, back in Q4/2019.*

The rebound in Q3 was broad-based and largely reflected the reopening of the economy after the lockdowns imposed for much of the prior quarter. Final domestic demand soared by 10.8 percent, as housing investment, business investment and household spending, particularly on durable goods, all recovered strongly. Exports also grew in volume terms as the US economy also bounced back, albeit not quite as strongly as Canada's. 

So, what comes after V? We can get some clues by looking at the monthly GDP data also released by StatsCan today. The bulk of the data relates to September, which saw a month-on-month gain of 0.8 percent, with both the goods and services sectors posting solid gains. However, StatsCan's preliminary estimate for October suggests a gain of only 0.2 percent. This undoubtedly reflects the accelerating second wave of COVID during the month, with the four most populous Provinces (Ontario, Quebec, Alberta and BC) all tightening restrictions as their case counts mounted. 

November has seen even worse COVID numbers and the imposition of more restrictions and lockdowns.  A decline in real GDP for the quarter as a whole seems unavoidable, though it is likely to be much less severe than that seen in Q2. The first quarter of 2021 is likely to see further weakness, potentially giving way to resumed growth by Q2 if the promised timetable for the rollout of a vaccine actually comes to pass. Appropriately enough then, it seems likely that what comes after V will indeed be W! 

* If you use monthly data, which have arguably been more instructive this year, the actual peak was in February 2020.