Growth data released this morning by Statistics Canada are, well, confusing. Monthly data show that GDP rose a solid 0.7 percent in June after declining in April and May. The improvement reflected the easing of COVID restrictions across the country and was very broad-based. Of the twenty sub-sectors tracked by StatsCan, fifteen posted higher output in the month, with both goods and services showing gains. Even with the June rebound, however, real GDP remains about 1.5 percent below its pre-pandemic peak.
But then there are the quarterly GDP numbers, which showed that real GDP fell almost 0.3 percent from Q1, its first decline since the corresponding quarter of 2020. Just one month ago, when StatsCan released its May GDP data, it expressed confidence that the final data for Q2 as a whole would show a 0.6 percent gain, so this outcome is a nasty surprise. Key factors driving the weakness include housing retail activities, as that market comes off the boil, and exports, where the main contributing factor appears to be the ongoing semi-conductor shortage.
Other elements of GDP, including residential and non-residential investment, business inventories and government spending, all posted gains in the quarter. Moreover, real gross national income and final domestic demand were both higher in the quarter, so the overall picture is not as bleak as the headline numbers suggest. However, that hasn't stopped some business economists from switching abruptly to a much gloomier tone -- check out one or two cliche-heavy examples of that in the final paragraphs of this CBC article.
But then again -- I warned you the data were confusing -- StatsCan's preliminary estimate for GDP in July shows signs of further weakness. The agency expects a 0.4 percent fall in GDP for the month, with weakness in manufacturing, construction and retail trade. Given that July was the first full month in some time with only limited COVID restrictions in place in most Provinces, this outcome is surprising, to say the least. It also looks to be inconsistent with the job gains already reported for the month. Final GDP data for July will not be available until October 1.
If there is a fresh bout of economic weakness on the way, that's bad news for all Canadians, of course, but perhaps especially for Prime Minister Trudeau. His campaign for the September 20 election is off to a very bad start, amid moderately higher COVID case counts, the shambolic withdrawal from Afghanistan and a general sense among voters that he had no good reason to call an election at this time. Bad economic data are the last thing Trudeau needs. Opinion pollsters are starting to suggest that the Tories are looking like the likeliest winners of the election, albeit without an overall majority. That's something almost nobody expected when the election was called.
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