Skype: Signal2forex / Whatsapp: +79065178835
0$0.00

No products in the cart.

Canadian Economy Rebounds in the Third Quarter

Real GDP rose by 5.4% (annualized) in the third quarter, above the consensus call for 3.3%. This left economic output 1.4% below its pre-pandemic (2019-Q4) level. In nominal terms, GDP increased by 8.9% in the third quarter. Statistics Canada also introduced historical revisions in today’s release that showed the economy contracted by 3.2% in the second quarter, worse than the previous estimate of -1.1%.

Household consumption, specifically in semi-durable goods (+68.7% annualized) and services (+27.8%) drove the third quarter rebound. With provinces lifting restrictions, spending on areas hardest hit by the pandemic (transport services, food, beverages and accommodation services, entertainment among others) rose sharply. Meanwhile, expenditure on durable goods (-5.4%) declined due to supply chain disruptions.

In terms of business investment, it contracted by nearly 18% in annualized terms in the third quarter. Residential investment (-31.3%) saw the steepest decline as new construction and renovations dropped in the second quarter. In addition, resale market activity slowed last quarter. Investment in non-residential structures (-1.1%), machinery and equipment (-0.7%), and intellectual property products (-5.7%), saw more modest declines in the third quarter.

As for the external sector, exports (+8%) saw a solid rebound driven by crude oil exports. Imports (-2.3%), on the other hand, decreased due to lower imports of pharmaceutical products and toys, games and small appliances.

On the income side, household disposable income increased by 7.2% on the back of gains in employee compensation. Transfers from governments dropped by 6.3%, but remained elevated in the third quarter. As household consumption had a stronger showing than disposable income gains, the savings rate fell from 14% to 11% last quarter.

Statistics Canada also released monthly GDP data for September, which showed a 0.1% increase. In addition, the statistical agency stated that preliminary data for October indicates a 0.8% expansion in output for the month.

Key Implications

After a disappointing second quarter (one that was made worse by revisions), the Canadian economy rebounded soundly in the third. The reopening of provincial economies and the ramp up in vaccinations propelled strong consumption growth, particularly in areas that were under public health restrictions through much of the pandemic. For example, spending on food, beverage and accommodation services rose 29% (non-annualized), while Canadians’ expenditure on air travel increased a whopping 156% (also non-annualized). As a result of these robust bounce backs, services consumption accounted for most of the growth in the economy in the third quarter.

Meanwhile, durable goods consumption and business investment floundered last quarter. Hampered by global supply chain disruptions, consumers spent less on durable goods, specifically automobiles, and businesses invested less in machinery and equipment. If not for supply shortages, GDP growth could have been even stronger in the third quarter.

Looking ahead, the good news is that global supply chain issues are showing signs of easing. Shipping costs have declined, and production in Asia is picking up. The bad news is that new headwinds are forming for the Canadian economy. Flooding in B.C. is wreaking havoc on communities, farmlands, and shipping routes. This will undoubtedly weaken near-term growth. Adding to the woes, is the recent emergence of the Omicron COVID-19 variant. Not much is known about this strain at this point, but if it proves to be more dangerous than other variants or vaccines less effective against it, it will be the key downside risk to Canada’s economic recovery.

Share this product!

Do you want to start trade profitably?
Earn 50-300% monthly!