Canada's Economic Recovery Probably Sputtering Right Now: CIBC

Canada’s economic recovery from the spring lockdowns appears to be running out of steam amid a second wave of COVID-19, a CIBC economist says.

“It appears that the economy was slowing more than expected heading into the fourth quarter, and the most likely outcome now suggests that (economic output) barely advanced during the period,” CIBC economist Royce Mendes wrote in a client note Friday morning.

Mendes was reacting to data from Statistics Canada showing that Canada’s economic growth which shot up strongly in the spring, as lockdowns were lifted has been slowing steadily for months.

After a 3.1 per cent increase in July, Canada’s economy grew at a 1.2 per cent pace in August, Statistics Canada reported Friday morning. Its flash estimate for September suggested growth slowed even further, to 0.7 per cent.

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That September number is “well below what was indicated by the earlier released employment data,” Mendes wrote.

“Assuming the economy contracts in October and November, due to a resurgence in the virus and the associated public health response, the fourth quarter looks likely to undershoot even the Bank of Canada’s tepid forecast of one per cent (annualized) growth,” Mendes added.

As of August, Canada had recovered much of the activity that was lost during the lockdowns, but overall the economy was still 5 per cent smaller in August than it was in February, before the pandemic lockdowns began, StatCan noted.

However, some experts took a more optimistic tone on the latest economic numbers. 

Douglas Porter, chief economist at Bank of Montreal, noted that, in normal times, August’s 1.2-per-cent growth would have been the second-best in record in the past 20 years.

“The way forward has been deeply clouded by the second wave and renewed restrictions, so growth will cool considerably in Q4,” Porter wrote in a client note.

“However, we suspect that with ongoing massive fiscal support, less restrictions than earlier, and, simply, that consumers and businesses have learned to operate in this new environment, the late-year setback should be relatively mild.”

Porter estimated that at the end of September, Canada’s economy was about 4.5 per cent smaller than it had been a year earlier, while the U.S. economy was 2.9 per cent smaller and the Eurozone the 19 countries that use the euro saw their economy shrink 4.3 per cent.