A temporary setback?

Statistics Canada reported today that Canada's GDP fell 0.3 percent in April, its first monthly decline since the corresponding month last year.  Its preliminary estimate suggests a further 0.3 percent decline likely occurred in May. Real GDP remains about 1 percent below the all-time peak set in the last pre-pandemic month, February 2020. 

The April decline was in line with market expectations, and was largely the result of renewed COVID restrictions imposed across the country in response to the third wave of the pandemic.  Twelve of the 20 sectors tracked by StatsCan posted declines in the month, with retail trade posting the biggest contraction at 5.5 percent, as the sector continued to be whipsawed by the ever-changing COVID rules. Manufacturing was also weak, partly in response to the global shortage of semi-conductors, while the construction sector, mining and energy production posted gains. 

StatsCan's preliminary estimate for May suggests that retail trade again led the declines for the month.  However, Canada's vaccine rollout, justly criticized as puny and tardy a few months ago, is now in high gear. As a result, Provinces are steadily removing restrictions on key sectors such as retail and hospitality. Ontario, the most populous Province, has been chastened by the resurgence in the pandemic when it has eased restrictions in the past, so it is moving very slowly this time. This will weigh on the national data for June, but July and beyond are likely to see much stronger results.  

Even with a modest rebound in June, real GDP for the second quarter as a whole is likely to show a slight decline from Q1. However Q3 is likely to turn out very strong, finally allowing real GDP to regain and surpass its pre-COVID level.

Every silver lining has a cloud, of course, and for Canadians it's likely this: the successful vaccine rollout and the imminent recovery in the economy will almost certainly prompt  Prime Minister Justin Trudeau to call a Federal election for early fall, in hopes of regaining a majority in Parliament. As if we haven't suffered enough for the past eighteen months. 

UPDATE, July 1: you want more evidence that an election is coming? Trudeau has shaved off the shaggy beard he's been sporting for over a year and got himself a nice neat haircut.