Canadian Economy: Early Signs Of Recovery But Still Long Way To Go

The actual Canadian economic situation is facing strong deflationary pressures and negative growth.

Taking a broad overview of major coincident economic indicators and hard data will lead us approximately to the same conclusion.

The unemployment rate is the highest in all Canada modern history.

Inflation data are trending lower, with headline CPI at 0.8% YoY, the lowest reading since Nov-2013.

Industrial production and retail sales are both in the negative territory, pointing a contraction in activity from the same period one year ago.

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MONETARY POLICY MEASURES:

In response to the extremely bad economic situation, the Bank of Canada has taken extraordinary easing steps to help sustain the economy, through huge asset purchases and a sharp cut in interest rates in May & April, and maintain of low rates since then.

In addition, cheap money printing (M2 money supply) was another tool that is fully overused to help to stimulate the economy.

Those monetary policy measures were taken from the same rulebook used by all major central banks around the world to face the COVD-19 pandemic disastrous effect on economy and health.

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EARLY SIGNS OF RECOVERY

By the end of June, we start seeing some signs of life in Canadian economic activity.

Those early signs are mainly indicated through economic leading indicators (PMIs & surveys).

In June the manufacturing PMI data made a big jump to 47.8 from May 40.6. This signals a sharp decrease in the pace of contraction and is expected to turn above 50 (expansion) within the next month or two, as Canada Begins to Re-Open.

The second indicator was a building permit. Generally, the numbers are still below the historical average trend. But the data are signaling a bottom in April, and with the lockdown easing, the housing activity is expected to continue its move toward the normal pace of activity.

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