By Paul Vieira
OTTAWA--After a short yet sharp pandemic-induced plunge, Canadian economic output surged in May on the strength of retail spending and the resumption of construction activity. Canada's official data-gathering agency expects another stellar month of growth in June.
The May rebound, which smashed the previous record for month-over-month increase, suggests Canada's economic recovery is now in full swing, with some economists arguing the Bank of Canada's outlook for growth and inflation might be a tad too dour.
Statistics Canada on Friday said GDP in May rose 4.5% from the previous month, to 1.700 trillion Canadian dollars ($1.265 trillion). Expectations in the market were for a 3.5% increase, according to economists at Bank of Nova Scotia. May's climb follows a revised 11.7% decline in April.
Even with May's gain, economic output remains 15% below pre-pandemic levels.
The data agency added it estimates that GDP grew 5% in June on a month-over-month basis. For the second quarter as a whole, Statistics Canada anticipates a nonannualized decline of 12%, or in line with a roughly 40% annualized drop. Those estimates are subject to revision with the release of second-quarter data on Aug. 28.
The U.S. reported on Thursday preliminary GDP data for the second quarter, which indicated a record 32.9% annualized decline in the three-month period.
The May data and June estimates are in line with the most bullish Canadian market watchers, who believe the economy will expand steadily and return to pre-pandemic levels earlier than policy makers expect.
Prior to the GDP data release, TD Securities said it anticipated a 6.8% decline in economic output for Canada in 2020, versus the Bank of Canada's call for a 7.8%.
"The Canadian recovery is off to an encouraging start," said TD Securities' chief Canada strategist, Andrew Kelvin, after reviewing the May data.
Stephen Brown, an economist at Capital Economics, said that unless a recent uptick in Covid-19 cases "morphs into a pronounced second wave of the virus," the Bank of Canada will likely have to upgrade its forecasts for growth and inflation in coming rate decisions.
Bank of Canada governor Tiff Macklem said this month he expects the central bank's main interest rate to remain at near zero, or 0.25%, for at least two years as the economy recovers from the pandemic-fueled plunge.
In Canada, growth in reported Covid-19 cases has slowed markedly compared with peaks that were seen in late April and early May, allowing nearly all jurisdictions to relax restrictions on most economic activities. Canadian authorities have moved cautiously in reopening segments of the economy, in contrast to the U.S. -- where some states are now forced to reimpose social-distancing measures after a fresh surge of reported cases.
The GDP report indicated that the construction sector grew 17.6% in May, after authorities in Canada's biggest provinces, Ontario and Quebec, began to ease restrictions. That marks the biggest one-month rise since 1961, when Statistics Canada began collecting monthly data. Retail sales also climbed at a record pace, 16.4%. May figures for retail consumption indicate sales have returned to pre-pandemic levels.
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