Preliminary GDP data suggests 2020 could be worst year on record

Canada’s economy appears to have suffered its worst year on record as the national statistics agency’s preliminary estimate showed a contraction of 5.1% in 2020.

The flash estimate, which has yet to be finalized, is worse than 1982 when the economy contracted by 3.2%, which was the worst over the course of six decades of comparable data.

Not even at the height of the global financial crisis were things as bad as they were last year when real gross domestic product fell 2.9% in 2009.

Statistics Canada said it will finalize the numbers in March.

The drop last year is largely due to steep declines in March and April of 2020 as large swaths of the economy were shut down during the first wave of the Covid-19 pandemic.

Since then, economic activity has slowly and steadily grown.

The growth has been uneven to create a K-shaped recovery with some sectors doing well while others lag behind, and further strained by the second wave of Covid-19 even if it doesn’t seem reflected in GDP numbers.

While our personal lives may be as affected as they were during the first wave of the virus, the economy is not as impacted because of how we’ve changed the ways we work and spend, said CIBC senior economist Royce Mendes.

“That’s why you’re seeing some of the numbers not only be better than they were during the first wave, but also maybe be better than they were expected to be. “

Statistics Canada said Friday the economy grew 0.7% in November, marking the seventh straight month of gains after the steep drops in the spring. The growth followed a 0.4% increase in October.

November saw positive news about vaccines and a presidential election south of the border where Joe Biden defeated Donald Trump.

Improved sentiments fuelled stock market activity as the finance and insurance sector grew by 1.3% in November. Mining saw an increase in demand for things like potash and non-metallic minerals. Likewise, the oil and gas sector saw gains as facilities in Alberta restarted production.

The retail sector was up by 1.1% in November, including growth of 6.1% in the food and beverage subsector that Statistics Canada attributed to higher activity in grocery stores and stores selling beer, wine and liquor.

Statistics Canada said total economic activity in November remained about three% below where it was in February, just before the pandemic.

Federal spending has looked to keep a financial floor under businesses and workers hit hard by the pandemic. The Finance Department said Friday the deficit hit $232 billion between April and November, compared with a deficit of $11.8 billion over the same period one year earlier.

The Liberals estimate the deficit will reach $381.6 billion this fiscal year, but it could hit $400 billion depending on the depth and duration of lockdowns that started in December.

Statistics Canada said its preliminary estimate for December shows growth of 0.3%, even with heavy restrictions and a loss of 63,000 jobs.

If December’s pace were to be sustained, it would take until November of this year for the economy to get back to its pre-pandemic levels, wrote TD senior economist Sri Thanabalasingam.

“The recovery could quicken given the arrival of vaccines, but the timing remains uncertain,” he wrote. “Recent stumbles in the vaccine rollout process, and the presence of more contagious strains of Covid-19, cloudy the near-term outlook.”

The preliminary estimate for the fourth quarter shows an annualized growth rate of 7.8%, suggesting the economy healed more than expected over the last three months of 2020, Mendes said.

But it may not last long.

“When we start to look at what the January data will reveal, I think you could see more evidence of the second wave of the virus infecting the overall economy, and even more pain in those sectors such as restaurants and bars,” he said.