GDP (Q4) - Capital Economics
Canada Economics

GDP (Q4)

Canada Data Response
Written by Stephen Brown
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The 9.6% annualised gain in fourth-quarter GDP was three times as strong as the consensus forecast from just a couple of months ago. The preliminary estimate that GDP grew by 0.5% m/m in January confirms that the economy continued to shrug off the latest coronavirus restrictions at the start of the year too.

Economy continues to outperform expectations

  • The 9.6% annualised gain in fourth-quarter GDP was three times as strong as the consensus forecast from just a couple of months ago. The preliminary estimate that GDP grew by 0.5% m/m in January confirms that the economy continued to shrug off the latest coronavirus restrictions at the start of the year too.
  • The 9.6% expansion was also stronger than the preliminary estimate of 7.5% that Stats Can released last month, even though the gain in December, of just 0.1% m/m, was weaker than the 0.3% initially signalled. The effect of the latest coronavirus restrictions was clear, with household consumption edging down by 0.4% annualised in the fourth quarter, in part due to large falls in spending on high-contact services. Net trade also weighed on GDP as the 10.8% annualised rise in imports far outpaced the 5.0% gain in exports.
  • Yet the jump in imports partly reflected a rebound in inventory building, which contributed strongly to the overall gain in GDP, and a rebound in investment, which rose by 10.6% annualised. Machinery and equipment investment increased by 4.2% and residential investment performed even better, increasing by a further 18% amid strong home sales and new construction.
  • All this still means GDP slumped by 5.4% in 2020 and remained 3.2% below its pre-pandemic level in the fourth quarter. That is worse than the peak-to-trough declines in GDP in most recessions, and means Canada underperformed the US last year. (See Chart 1.)
  • Nevertheless, Canada closed the gap in the fourth quarter and the preliminary estimate for January, that GDP rose by 0.5% m/m, shows the economy continued to cope well even as the coronavirus restrictions were tightened. With GDP likely to grow at a similar pace in February and March now those restrictions are being eased, first-quarter growth should also be much stronger than most expected just a couple of months ago. Other forecasters, including the Bank of Canada, will have to cross out their predictions for a first-quarter decline, while we will have to upgrade our forecast from a 1% expansion to closer to 4%.

Chart 1: GDP (Index, Q4 2019 = 100)

Source: Refinitiv

Table: Real GDP (%q/q Annualised)

GDP

External Trade

Domestic Demand

Exports

Imports

Household Consumption

Residential Investment

Business Investment

Government Spending

Final Domestic Demand

Q1 2020

-7.5

-10.4

-8.5

-7.1

-2.2

-4.0

-3.1

-6.1

Q2 2020

-38.5

-54.2

-64.9

-45.6

-49.2

-51.0

-16.5

-38.4

Q3 2020

40.6

73.1

118.8

63.4

191.4

25.6

16.9

50.8

Q4 2020

9.6

5.0

10.8

-0.4

18.4

3.8

6.2

3.4

Source: Refinitiv


Stephen Brown, Senior Canada Economist, +1 416 874 0517, stephen.brown@capitaleconomics.com