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Canada’s economy shrinks by a record 5.4%

OTTAWA, Canada—Canada’s pandemic-hit economy contracted 5.4 percent in 2020, its worst plunge on record, despite a strong rebound in the final three months of the year, the national statistical agency said Tuesday.

In the fourth quarter of last year, the economy beat expectations by growing 9.6 percent, amid higher government spending to help Canadians weather coronavirus restrictions as well as increased investments in business equipment and housing.

In 2019 GDP grew by 1.9 percent.

“Canada’s economy ended an extremely challenging 2020 on a surprisingly upbeat note,” commented BMO chief economist Douglas Porter, adding that the nation had “clearly dealt with the second wave (of COVID-19 outbreaks) and its related restrictions much better than generally expected.”

And early signs point to continued strength this year as COVID-19 vaccines are rolled out and the economy reopens in stages, he said.  

This presents, he commented, “a nice mirror image to last year’s deep dive. It’s not precisely a V-shaped recovery, but it’s very close.”

In response to the data BMO raised its 2021 growth forecast a full percentage point to 6.0 percent—a rate not seen since 1974. The Bank of Canada has predicted 4.0-percent growth this year.

From October to December 2020, according to Statistics Canada, new home construction and renovations as well as real estate sales jumped, while residential mortgage debt “expanded significantly.”

Businesses bought more machinery and equipment, but their investments in non-residential buildings fell in the fourth quarter, amid weak demand for office buildings and shopping malls.  

Many Canadians started working from home at the onset of the pandemic and public health officials ordered most retailers to close temporarily to slow the spread of COVID-19. As a result, online shopping suddenly became more common.

Household spending, however, was down slightly. Canadians in these times of economic uncertainty, for example, opted to buy used cars and trucks instead of new vehicles.

A decline in purchases of clothing and footwear was partly offset by increased buys of games, toys and hobbies, as well as equipment for sport, camping and open-air recreation.

“These movements reflected shifts in spending patterns in the wake of the pandemic,” said Statistics Canada, noting that 2020 saw the largest increase on record of disposable income. Analysts estimate total excess savings hit nearly Can$200 billion.

As Canadians spent more time at home and less time traveling, they spent more on food and cannabis—which was legalized for recreational use in 2018—and less on hotel accommodations, personal grooming and restaurant meals.

Growth in exports in the fourth quarter slowed, owing to reduced global demand and slowdowns in the economies of major trading partners such as the United States. For 2020, volumes were down 9.8 percent compared to the previous year.

Following record fluctuations in the previous two quarters, imports rose slightly. But overall volumes for the year were down 11.3 percent.

Topics: Canada , economy , GDP , COVID-19 vaccines
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