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Canada’s GDP Rebounded Robustly As Economy Reopened in May

Don Curren July 31, 2020

Canada’s economy bounced back robustly in May as lockdowns were eased across much of the country, with real GDP expanding by 4.5% in that month, according to data from Statistics Canada.

The surge in growth was considerably stronger than the 3.5% anticipated by economists.

The data had no noticeable impact on the Canadian dollar, which was slightly higher against its US counterpart on the session in morning trading.

StatsCan said as 17 of 20 industrial sectors increased following two months of unprecedented declines. While May’s gains offset some of the March and April declines, economic activity remained 15% below February’s pre-pandemic level, it said.

Both goods-producing (+8.0%) and services-producing industries (+3.4%) were up, it said.

The statistical agency is forecasting even stronger growth in June, with its preliminary estimate calling for an approximately 5% increase in that month.

As May marked the beginning of the reopening of the Canadian economy, a substantial improvement over April, when the country was largely locked down, is not surprising.

While many economists believe a sharp improvement in economic data is inevitable during reopening, it’s unlikely the economy will be able to entirely return to the levels of activity in evidence before the pandemic during the reopening phase. It may be followed by a lengthier and slower period of economic recuperation, particularly if recent flareups in COVID-19 cases in some areas persist.

StatsCan said residential construction increased 20.4% following two months of reduced activity. Gains in multi-unit construction along with home alterations and improvements led the way, more than offsetting lower single-unit construction in May, and non-residential construction jumped 56.7%, it said.

Retail trade grew 16.4%, the largest monthly increase since the series began in 1961, as 11 of the 12 subsectors were up, StatsCan said. Motor vehicle and parts dealers contributed the most to the growth, with a 68.6% jump in May. If motor vehicle and parts dealers were excluded, retail trade would have increased 11.4%.

In the US, the Bureau of Economic Analysis reported that real disposable personal income decreased 1.8% in June and real personal consumption expenditure increased 5.2%.

The core PCE price index, which excludes food and energy came in at 0.90% on a year-over-year basis, the lowest reading since the index was created on Jan. 1960, and weaker than the 1% expected by economists.

On Thursday, the BEA said US GDP contracted about 9.5% during the second quarter – an annualized rate of 32.9% and the largest quarterly decline on record.

Both the Federal Reserve and the Bank of Canada have recently reaffirmed their intention of maintaining accommodative policy stances until conditions have normalized. In the absence of changing expectations of monetary policy, risk sentiment remains a key driver of action in foreign exchange markets.

Don Curren
Market Strategist and Content Editor

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