Prospects of continuing the momentum of growth in Canadian economy is brighter than forecasted earlier, despite the COVID-induced contraction.
According to Statistics Canada, Gross domestic product grew 0.7 per cent in January and a preliminary estimate for February indicates that the country was on a path to production expansion of 0.5 per cent, the 10th-straight monthly gain in GDP.
What is significant is that the numbers indicate how efficiently the economy dealt with the latest wave of lockdowns and its resilience that fuelled renewed expectations for a strong rebound in 2021 following the worse-ever downturn that the nation suffered in the post-World War II era.
“This is yet another pleasant upside surprise,” Doug Porter, chief economist at the Bank of Montreal, said in a report to investors.
Impressive growth forecasts
Economists expected a 0.5 per cent gain in January and this was far better than the forecasted number for the first two months of the year, suggesting the first-quarter growth will be better than the Bank of Canada forecast. Growth for the quarter is being recorded at more than 5 per cent on an annualised basis, even if the expansion mired in March.
Originally the Central Bank expected a contraction in the 1Q and started to signal that it would slow down its purchases of Canadian government bonds. The bank’s first strategy was to do quantitative easing, which has been a major tool policy makers have used to maintain market interest rates low since the outbreak of the global pandemic a year ago.
“With the economy doing much better than policy makers expected, it seems likely that the Bank of Canada will cut the pace of its asset purchases,” Stephen Brown, an economist at Capital Economics, said in a report to investors.
Overall there are adverse impact of the winter lockdowns, irrespective of the robust start to the year, growth is still anticipated to be slowed down in the first three months of this year following a 10 per cent annualised gain in the fourth quarter of 2020.
Growth in diverse sectors
In January, the growth could be attributed to substantial gains in the wholesale sector, with activity for the sector up 3.9 per cent for the month. Then, Manufacturing followed, showing strong performance, posting a 1.9 per cent expansion in January while growth was led by better performance in fabricated metal and machinery.
As expected, the Sectors directly affected by the pandemic like those of retail and restaurants all recorded declines in January amid shut downs. However, Statistics Canada said retail rebounded in February.
Considering the overall performance, economic growth could be anticipated to be higher in provinces which were hard hit by the COVID-induced economic contraction in 2020.
Booming provinces
Hard hit provinces are expected to rebound with vigor. For instance, Ontario, which had experienced the strictest health restrictions in 2020, could post the country’s strongest economic growth in 2021.
Substantial investments in the automotive manufacturing sector would contribute to boost up the province’s manufacturing sector. Another driver of growth would be the expected resurgence in immigration, particularly, in the Greater Toronto Area, fuelling an anticipated growth of 4.5% in Ontario.
This impressive growth would be followed by British Columbia and Quebec which would anticipate to record high growth rates of around 4%. Less growth momentum is expected in housing market in British Columbia and a rather slowdown in the aerospace sector in Quebec.
However, in the Prairies, Alberta which was worse affected not only by the lockdown but also its impact on oil prices in 2020. It will reap the benefits of better control of pandemic and the expected a growth below average (3.5%), due to the low level of investment expected in the oil sector.
There was a strong growth due to the pandemic in remote work, e-learning, telemedicine and ecommerce enhanced the adoption of technologies in all sectors of the economy in 2021 and this resulted in the decline in output in the technology sector by only 3% between February and April 2020, against the overall fell of 18% in the economy.
However, horizons would be expected to expand with around 40% of Canadian SMEs plan to make substantial investments in technology in 2021 and that would benefit the sector. As a whole, the technology sector is forecasted to record a growth by 1.1% in 2020 and then by 2.2% in 2021.
For most other sectors, the crisis felt more or less like a normal recession. Production level is expected to regain at pre-pandemic levels by 2022.
Some of the sectors that are expected to post a slow growth include the tourism, accommodation and food service sectors. These hard-hit sectors may have to wait until the pandemic is completely under control and business reach again the pre-pandemic status.
Considering the overall impressive performances, the Canadian economy is poised to rebound with vigor and vitality at a rate greater than what was forecasted earlier.
