The final count: down

No surprise here: the media take on this morning's Canadian GDP data for 2020 accentuated the negative. This headline from the CBC website is typical: "2020 was the worst year on record for Canada's economy. It shrank 5.4 percent".  That's factually correct: the decline in GDP for the year was the worst since quarterly data were first collected in 1961. But it's not even close to being the full story -- indeed it's old news, inasmuch as all of the "worst" stuff happened way back in the spring of 2020. A look at the actual report conveys a different picture, both for the current situation and for what might unfold next.

Even the CBC sort of recognizes this, The sub-head on the linked article admits that "economic activity has slowly, steadily grown" since the summer. Grown it certainly has, but slowly and steadily are not the best qualifying adverbs to use. Growth in the third quarter was at an annual rate of over 40 percent, easily the fastest ever. For Q4 -- and this is the new data released today -- growth slowed markedly to an annual rate of about 9.6 percent, which is still very robust by historical standards and beat market expectations.

Along with the quarterly data, StatsCan also published monthly GDP data for December.  This revealed that GDP edged up only 0.1 percent in the month, well below the 0.8 percent seen in November. As a result GDP remained about 3 percent below its pre-pandemic (i.e. February 2020) peak. Given the re-imposition of COVID restrictions across the country during the month, this was no real surprise. 

However, StatsCan also published its preliminary take on growth for January, and this was unexpected: the agency estimates the economy grew 0.5 percent in the month. The growth was by no means broad-based, as mining, quarrying and energy production, plus the public sector, accounted for all of the gains. Even so, with Provinces starting to lift restrictions again in February and vaccination programs finally accelerating, earlier expectations for a decline in GDP in the first quarter of the year clearly need to be rethought.

The fact that the economy is continuing to move ahead should influence the budget decisions now being taken by Finance Minister Chrystia Freeland and her team. They also need to take account of one other statistic from today's Q4 data.  Canadians are not great savers, but the household savings rate in Q4 stood at 12 percent; for the year as a whole it was above 15 percent. 

Freeland has coined the term "pre-loaded stimulus" to describe this fattening of Canadians' bank balances.  This is certainly more politically palatable than admitting that maybe the pandemic benefit schemes were excessively generous or too indiscriminate. But if we assume that Freeland really believes in it, the "pre-loaded stimulus" should surely dictate how much more spending the Government needs to add on budget day. There's no case for wholesale elimination of the emergency benefits just yet, but with bond markets starting to sound the alarm about inflation risks, this may not be the time for a whole raft of new spending.