E Canada’s Pandemic Recession Is Far From Over

“Remember all the commentary about how well the Canadian economy had dealt with the third wave restrictions during the spring? And how businesses and consumers had learned how to operate amid the virus? Well, the reality appears to have been much less constructive, with widespread supply chain issues also causing havoc with growth in the (second) quarter.” (Douglas Porter, BMO, August 31, 2021)

The Canadian economy contracted at 1.1% at annual rates in the second quarter of 2021, sending shivers to many economic policymakers, since the data confirms that the recovery to date has been much weaker than expected.

Moreover, incomplete data for the month of July also suggests that the economic weakness continued into Q3 since monthly GDP also contracted. Moreover, the fourth wave of the Covid pandemic hasn’t yet shown up in the latest data.

So even after a roller coaster downturn and uneven recovery dominated by different waves of the pandemic, Canada’s economic outlook continues to appear quite shaky. Canada’s real GDP is still about 2% below its pre-pandemic level, which occurred in the fourth quarter of 2019.

flag of Canada

Photo by Hermes Rivera on Unsplash

Nonetheless, on a nominal basis, Canada’s GDP grew at a 7.9% annual rate in Q2, which in contrast to the shrinkage in the real economy, was good news for federal and provincial fiscal positions (i.e., stronger revenues), and of course for corporate profits. On a nominal basis, Canada’s Q2 GDP exceeds its pre-pandemic high,

Canada’s nominal GDP numbers don’t look as bad as the real (or inflation-adjusted) figures because of the strange nature of the pandemic recession. As one of the following charts illustrates, virtually the entire pandemic contraction occurred in Q2 of 2020, and Canada’s recovery since the end of the second quarter in 2020 has been very uneven.

Over the course of the pandemic, there has been a huge injection of fiscal support from the Canadian government which dramatically boosted personal disposable income. As well, federal government transfer payments preserved many jobs and provided needed lifelines to many companies.

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William K. 1 week ago Member's comment

For those folks who increased their savings because of the governmenthandouts, it certainly seems that they did not really need the handout. Of course that was not everybody, some would have been in dire straits without the support. So probably it would have been better to verify the need prior to the distribution, and no, it would not be "fair" to only support those in need, but certainly just as effective.

The advantage that Canada does possess is that our federal reserve clowns are not in control of Canadian banking, so they are a bit free from the long history of economic bungling.

Sort of harsh words, I know, but will any argue?

The difference between "nominal" and "actual" numbers points at a defficiency between accounting methods at some point. Or it may be a question of interpretation, I am not sure..